Fonterra increases farmgate milk price forecast

Posted by Andrea Hogan on 24th May 2017

Fonterra has increased is 2016/17 forecasted farmgate milk price by 15 cents to $6.15 per kilogram of milk solid.

Chairman of Fonterra, John Wilson, said the increase reflects the strong fundamentals supporting global dairy markets.

“World dairy prices have risen in recent months and as we near the end of the season we have more visibility and certainty which makes us confident of our $6.15 position,” he said.

In a trading update, Fonterra reported some of the challenges it faced in its third financial quarter of the 2017 financial year continue, but said it is committed to a strong fourth quarter.

Fonterra is now forecasting $6.50 per kilogram of milk solid for the 2018 season.

“The increase in the forecast Milk Price for the current season and the improved forecast for 2017/18 will be welcome news for our farmers following two challenging seasons on farm,” Wilson said.

“Stronger production in March and April has partly offset lower peak milk production and collections are now expected to be down 3 per cent for the season, a much better outcome for our farmers than had been anticipated earlier in the year,” Wilson reported.

Third quarter financial update

Fonterra reported a revenue of $13.9 billion for the first nine months of its 2016/17 financial year, an increase of 8 per cent on the same period for 2015/16.

The increase was attributed to higher milk prices.

“Our volume to value strategy continues to drive our performance in the Ingredients and Consumer and Foodservice businesses,” Chief Executive Officer Theo Spierings said.

“Margins in most of our businesses are similar to last year, and we have moved an additional 350 million liquid milk equivalent (LME) into higher value products in the year to date. Consumer and Foodservice volumes in Greater China in particular have grown by 40 per cent in the period. We are on track to exceed our target of moving an additional 400 million LME into higher value products by year-end,” he said.

“Better than expected autumn weather conditions have resulted in more milk at the end of the season which combined with higher milk prices is good news for the Co-operative,” Spierings stated.

Previously signalled challenges, including product stream returns and pressure on margins, have however had a greater impact than expected in the third quarter.

“The closing of the relative price gap between reference Milk Price products and non-reference products has reduced overall profitability in our Ingredients business,” Spierings said.

“We have continued to manage our costs tightly, with operating expenses for the nine months down per cent. Efficiencies and improvements in working capital are ongoing, and capital expenditure is in line with expectations and expected to reduce in the 2017/18 year. Our gearing is forecast to be in the target range of 40-4 per cent at the conclusion of the year. All these factors contribute to the continuing strength of the Co-operative’s balance sheet,” Spierings said.


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