The dairy giant Fonterra has raised its milk price payout forecast to a new record level.
Photo: RNZ / Rebekah Parsons-King
The co-operative said it now expects this season's payout to farmers to be between $8.90 and $9.50 per kilogram of milk solids (kgMS), up from the previous record forecast of between $8.40 and $9 per kgMS.
Fonterra chief executive Miles Hurrell said the new midpoint of $9.20 per kgMS would see about $13.8 billion pumped into the economy.
"The increase is the result of consistent demand for dairy at a time of constrained global milk supply.
"Overall, global milk supply growth is forecast to track below average levels, with European milk production growth down on last year and US milk growth slowing due to high feed costs," Hurrell said.
It is a similar story in New Zealand, as earlier this month the dairy company reduced its milk collection forecast for the current dairy season due to varied weather and challenging growing conditions.
The high milk price is good news for farmers, but it puts pressure on Fonterra's margins because it means it will have to pay higher input costs when producing dairy products across its consumer and food service businesses.
Hurrell said prices in the co-operative's ingredients business were favourable for milk price and earnings at this stage.
"As a result, we remain comfortable with our current 2021/22 earnings guidance of 25-35 cents per share."
The company was continuing to manage rising inflationary pressures, increased potential for volatility as a result of high dairy prices, and economic disruptions caused by Covid-19 and the Omicron variant, Hurrell said.