Fonterra chief executive Miles Hurrell says firm global demand for dairy products is the cause of its latest milk price forecast.
Continued global demand for dairy products has seen Fonterra lift its milk price from $8.90-$9.50/kg milksolids to $9.30-$9.90/kg MS.
This increases the price midpoint by 40 cents to $9.60/kg MS.
Fonterra chief executive Miles Hurrell said the lift reflected the increase in global dairy prices since the previous milk price update in January and good levels of ongoing global demand for dairy.
“Since we last revised our forecast, average whole milk powder prices on GDT have increased 10.3%, while skim milk powder has increased 8.4%. Both products are key drivers of our milk price,” Hurrell said.
“Global demand for dairy remains firm, while global milk supply growth continues to track below average levels. These demand and supply dynamics are supporting the increase in prices.”
Milk production in the EU and US continues to be impacted by the high cost of feed and this is not expected to change in the coming months, he said.
New Zealand farmers have experienced challenging weather conditions, which impacted grass growing conditions.
As a result, Fonterra has revised its 2021-22 NZ milk collections forecast to 1480 million kg MS, down 3.8% compared to last season.
“This reduction in supply reinforces our strategic focus on ensuring our milk is going into the highest value products,” he said.
He said the $9.60/kg MS forecast midpoint was a cash injection of over $14 billion into NZ’s economy through milk price payments alone.
It will be welcome news for farmers who are facing rising costs on-farm, including from inflation and rising interest rates.
“Analysis by Statistics New Zealand shows a number of key farm inputs have experienced significant inflation pressure over the past two years, for example, electricity costs are up 21%, while stock grazing costs are up 36.9%,” he said.
While the higher forecast puts pressure on Fonterra’s margins in consumer and foodservice, prices in its ingredients business remain favourable for milk price and earnings at this stage.
“As a result, our current 2021-22 earnings guidance of 25-35c per share remains unchanged,” he said.
Hurrell said Fonterra was watching closely the impact on demand from rising interest rates and inflation, increased potential for volatility as a result of high dairy prices, geopolitical issues and economic disruptions from covid-19, particularly as governments manage the rapid spread of the Omicron variant.
