Fonterra's chief executive Miles Hurrell says global dairy trade prices have not recovered to the levels required to hold the previous midpoint for this season. Photo: 123RF
Fonterra has trimmed its forecast milk price for this season and announced an even lower opening price for next season amid falling demand and lower global dairy prices.
It has narrowed the forecast range for the 2022/23 season from $8.00 - $8.60 per kilogram of milk solids to $8.10 - $8.30 and reduced the midpoint from $8.30 per kgMS to $8.20.
Chief executive Miles Hurrell said: "We're well through the season now, with almost all of our milk contracted, giving us more certainty on where we'll end the season.
"Global dairy trade prices have not recovered to the levels required to hold the previous midpoint for this season. For these reasons, we have narrowed the forecast range."
But the dairy giant is expecting demand for whole milk powder in China to lift over the medium term.
It said this was reflected in its opening forecast farmgate milk price for next season of $7.25 to $8.75 per kgMS, with a midpoint of $8.00.
"We expect demand to gradually strengthen over the course of FY24 as China's economy continues to recover from Covid-19," Hurrell said.
"However, the timing and extent of this remains uncertain, with China's in-market whole milk powder stocks estimated to be above normal levels following increased domestic production. This is reflected in our wide opening forecast range for the season."
The new range is very close to the break-even cost of producing milk for many farmers - with them facing increased input costs for things like labour, fertiliser and feed.
Hurrell said Fonterra recognised the pressure farmers were under.
"We have designed a new advance rate guideline to get cash to farmers earlier in the season.
"Our strong balance sheet allows us to make these changes and we will be using this new advance rate guideline going forward, starting with the season about to commence."
Books looking strong
Fonterra also reported a profit after tax of $1,326 million for the third quarter of FY23 - an $854m lift on the same period last year.
That includes $260m from the sale of its Chilean business Soprole.
Hurrell said excluding the net gain from divestments, Fonterra's normalised profit after tax improved on last year, up $606m to $1,078m, equivalent to 65 cents per share.
"This is due to strong performance in our ingredients channel, with continued higher margins in our cheese and protein portfolio, particularly casein and caseinate.
"These favourable price relatives have continued longer than expected, and we're also seeing improved performance coming through in our foodservice and consumer channels, in particular in global markets."
As a result Fonterra has lifted its FY23 full-year forecast normalised earnings to 65-80 cents per share from 55-75 cents per share and remains on track for a strong full-year dividend.