Investor eyes will be on Fonterra, New Zealand's biggest business, this week. Photo / Fonterra
Fonterra is widely expected to report strong earnings for the 2024 financial year on Wednesday, but for the big dairy exporter’s nearly 8000 farmer-owners, the milk price it pays them will be the red-letter announcement.
Close behind in farmer focus will be what Fonterra leaders have to say about progress on their assessment of whether to sell the $3 billion-plus global consumer business.
Shareholder watchdog the Fonterra Co-operative Council is buoyed by an August signal that FY24 earnings from continuing operations were expected to be at the top end of a forecast 60c-70c per share.
But council chairman John Stevenson said farmers will first be eyeing the final milk price for the 2023-2024 dairy season.
“Generally speaking, the milk price is always the number one number for farmers as it makes up the highest percentage of the returns we get for farming cows,” Stevenson said.
The 2023-2024 dairy season ended on May 31 but suppliers are not fully paid for it until later in the year.
Stevenson said Fonterra’s dividend result – farmers have to buy shares to supply milk but since a capital structure shake-up, sharemilkers and contract milkers are now also offered investment pathways – was also important, but the impact would vary.
“Farmers will benefit differently but they are entirely reliant on the milk price unless they have shares.”
But keenly watching the dividend will be investors in Fonterra’s listed units. These are non-voting units in farmer shares, and listed on the NZX and ASX. Only Fonterra farmers can own shares.
Farmers will also be hoping for an announcement on Wednesday that the farmgate milk price forecast for the current 2024-2025 season is lifted.
“There’s plenty of speculation out there and it was pleasing to see the latest [Global Dairy Trade auction] result, but there’s a long road to home yet, it’s early in the season,” Stevenson said.
“At the moment it’s sitting at an $8.50 [per kg milksolids] midpoint which is above the latest DairyNZ... national break-even price of $8.09, but we’re a long, long way from receiving final cheques in the mail for the 2024-2025 season.”
Farmers were “pretty cautious” in their outlook.
On the positive side, farmer confidence had improved according to survey results from DairyNZ (industry good organisation) and Rabobank, he noted.
“But we’re not going to get ahead of ourselves. If it is a good result we’re not going to be running off and buying a new boat or anything like that.
“Interest rates are still taking up a fair bit of any free cashflow at the moment... and the $8.09 break-even figure doesn’t include principal repayments or capital investment. I would suggest that after the last couple of years, there will be some capital investment to catch up on-farm.”
Meanwhile, the council’s annual survey of Fonterra farmers showed satisfaction with the co-operative’s overall performance had lifted, from 58% of respondents in 2023, to 65% this year.
The proportional survey received 887 responses. It also showed a downward trend of previous years had been reversed, with confidence in the long-term future of Fonterra and the New Zealand dairy industry both increasing.
Farmers’ appraisal of Fonterra’s transparency and genuine consultation also improved, with 50% of respondents confident compared to 46% last year.
“Improving margins” and “advocating to central and local government” remained two of the most important areas Fonterra should focus on, farmers said. A majority continued to view “investing in innovation” and “retaining milk supply” as important focus areas for the co-operative.
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the $26 billion dairy industry, agribusiness, exporting and the logistics sector and supply chains.