WELLINGTON: Fonterra New Zealand increased its forecast milk price to $NZ6 a kilogram of milk solids ($6.33kg/MS) today. The co-operative said, when combined with the forecast earnings per share range for this financial year of 50-60 cents, the total payout available to farmers in the current season was forecast to be $NZ6.50-$NZ6.60kg/MS ($6.86-$6.96kg/MS) before retentions. Fonterra chairman John Wilson said the increase reflected improvements in pricing since September, following the gradual rebalancing of global supply and demand.
“We’ve seen falling production in the major exporting regions, particularly Europe and Australia, and an unprecedented decline in New Zealand milk supply due to wetter than normal spring conditions across most regions,” he said. “On balance, demand continues to be firm. As a result there has been a steady improvement in global dairy commodity prices and this is reflected in the improved forecast.
“We are very mindful that farm incomes will be affected this year because of lower milk production so we will be doing everything possible to build on our good start to the financial year and deliver the highest possible total payout to our farmers.” Fonterra reported first quarter revenue of $NZ3.8 billion — up six per cent on the same period last year. Sales volumes were up two per cent to 4.9 billion litres liquid milk equivalent, while the gross margin of 22 per cent remained largely unchanged.
Fonterra chief executive Theo Spierings said the first quarter revenue gains reflected broadbased volume and margin growth across the business, and an ongoing focus on cost controls. “Our operating expenses have reduced by two per cent to $NZ621 million and we continue to keep a close rein on them, in line with the financial discipline shown last year,” he said. The co-operative had moved an additional 128 million litres LME into higher-value consumer and food service products compared with the same period last year.
“The consumer and food service business achieved an improved gross margin of 31 per cent, up from 28 per cent. This reflects the increasing strength of our brands in key markets and our focus on chef-led solutions in food service,” Mr Spierings said. Mr Spierings said while the first quarter performance was pleasing, the co-operative’s earnings faced emerging headwinds for the remainder of the financial year. “Our current milk collection forecast is 1,460 million kilograms of milk solids, down seven per cent on last season, and this is constraining sales. “In addition there is a potential impact from the price of milk price reference products, such as whole milk powder, rising faster than non-reference products.”
