Photo: RNZ / Cole Eastham-Farrelly
Fonterra has raised its forecast payout to suppliers and posted a big rise in first quarter earnings, margins and profit.
The forecast midpoint of its payout range for the current season has been increased by 25 cents to $7.50 a kilo milk solids in a range of $7 to $8 a kilo.
Chief executive Miles Hurrell said the improved forecast reflected better prices and market conditions.
"Global Dairy Trade prices have lifted, and our sales book is also well contracted for this time of year, giving us confidence to increase our forecast Farmgate Milk Price.
"It's still early in the year, with potential for further volatility in commodity prices, so we will continue to watch market dynamics closely and provide updates as needed."
This week's auction rose 1.6 percent, taking prices to their highest level in five months.
Hurrell said the co-operative has had a 63 percent rise in earnings to $575 million, with its after tax profit rising 85 percent on a year ago to $392m, leading to an increased forecast earnings of between 50 to 65 cents a share.
Its three business operations - Ingredients, Foodservice and Consumer - had driven the rise in earnings, with gross margin up nearly six percentage points to 21.4 percent.
"Our Foodservice and Consumer channel performance is due to improved margins as well as the co-op allocating more milk to these higher returning channels. We've also seen continued strong performance in New Zealand Ingredients, but lower margins in Australia Ingredients."
It was expected the higher margins would continue throughout the first half of the year, before tightening in the second half because of higher costs and a narrowing in the price gap between various products, he said.
"Our increased forecast earnings guidance of 50-65 cents per share reflects this and we are on track for a strong interim dividend."
Hurrell said Fonterra was pressing on with new products for various markets such as an adult milk powder for Japan containing our protein and targeting muscle loss, and developing a cake containing probiotics for Greater China.