Fonterra sees bottom for milk price, Australian acquisitions boosting profit

Posted by Isobel Drake on 30th July 2009

The world’s largest dairy exporter, Fonterra, has indicated that the price of milk may have reached its floor, after a major decline saw it plummet from record highs last year. The New Zealand dairy firm has also upgraded operating profit forecasts on the back of Australian acquisitions and strong demand for premium goods.

Fonterra Chairman, Henry van der Heyden, said there were now tentative signs of strengthening demand and firming prices for some products in international dairy markets.

“Along with other exporters, we’ve been hurting with the Kiwi dollar up around 65 cents against the US dollar. The fall in our Milk Price forecast would have been larger if we hadn’t seen what are some early and encouraging signs in international markets,” he advised.

Mr van der Heyden said Fonterra had lowered its projections for milk supply in the 2009/10 season as a result of cold and wet winter weather conditions affecting pasture growth, and also tight cash flows reducing farm inputs.

The milk co-operative also announced a 22 per cent increase on their forecast for operating profit as their consumer businesses perform strongly and costs are reduced.

“Our combined consumer businesses are benefitting from shifts into higher-value products, as well as growth in market share in some areas. In addition, acquisitions in Australia are having a positive impact on earnings,” Fonterra CEO, Andrew Ferrier, advised.

“We’re also running a very tight ship, looking at every opportunity to reduce operating expenses and free-up cash for our business priorities. That means we have some capital constraints but the flip side is that, with inflationary pressures easing and lower interest costs, we’re starting to see the payback from this disciplined effort across the business.”