Sunday, August 14, 2022

Record opening forecast for new dairy season

Continued demand combined with constrained supply has prompted Fonterra to set an opening forecast of $8.25-$9.75/kg milk solids for the 2022-23 season.

Its midpoint range of $9/kg MS is the highest opening price ever for the co-operative.

Chief executive Miles Hurrell said the strong opening forecast reflects continued demand for dairy coupled with constrained global supply.

“We have continued to give a solid performance despite ongoing pressure from continued disruptions from covid-19 and an increasingly volatile global economic situation,” he said.

“It highlights the resilience of our business and the benefits of having a diverse portfolio.”

The wide forecast range for the new season’s forecast reflected the increasingly volatile global environment Fonterra was operating in, he said.

“We’re actively managing the challenges that arise from these events but like many businesses, they have impacted our performance in the third quarter.”

On the supply side, growth from key milk producing regions is expected to remain constrained as high feed, fertiliser and energy costs continue to impact production volumes.

These demand and supply dynamics are expected to support dairy prices in the medium to long-term, he said.

Fonterra’s advance rate will be paid at 60% of the midpoint forecast, which is $5.40/kg MS.

For the 2021-22 season, Fonterra has maintained its current price of $9.10-$9.50/kg MS.

“At a midpoint of $9.30/kg MS, this would be the highest forecast milk price in the co-op’s history and would see us contribute almost $14 billion into the New Zealand economy through milk price payments.

Hurrell said Fonterra had maintained its forecast earnings guidance range of 25-35 cents per share.

“While favourable price relativities in the fourth quarter are positive for earnings, we expect continued pressure on our margins due to the higher milk price coupled with the normal seasonal profile of our business.”

Chief financial officer Marc Rivers said the co-operative was managing multiple events across multiple markets in an increasingly volatile environment.

“Because of our depth and breadth of scale and the ability to move products between markets, we have continued to be able to deliver solid earnings and a strong milk price despite the unprecedented number of challenges.”

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