Fonterra’s Miles Hurrell ‘not too concerned’ about China

Fonterra chief executive Miles Hurrell says he is “not too concerned” about disruption in the co-op’s biggest market, China.

Rarely seen protests have broken out in the PRC over Covid-19 lockdowns in several cities, and demand for dairy there has declined over the past year or so.

“We have seen China slow down from its highs of maybe a year and a half ago,” he told the Herald at Fieldays.

“We have already seen it slow down economically - albeit to a healthy rate in a global context,” he said.

Fonterra had changed its product mix in China to suit the demand in response to rolling lockdowns.

“We have seen it soften, but China will remain a hugely important market for us this year and in the foreseeable future, so we are not too concerned,” he said.

Looking ahead to 2023, and reflecting on still high milk prices, Hurrell noted that there had been some softening in the market over the near term.

“But as we look forward to 2023 and beyond, we will see that the fundamentals [for dairy] still look strong.

“Supply and demand are in quite nice balance - if anything on the positive side for us.

“The bigger watch-out for us is the global recession starting to bite in some of our key markets.

“We could be dragged along with that.”

At the same time, dairy was recognised as a good food source and one that can “weather the storm” better than most.

Commenting on the decline in New Zealand dairy milk production this season, Hurrell said it was mostly the result of a “terrible” spring.

However, he said if wet weather continued into December then it could be beneficial to get farmers through the Christmas period, when conditions typically start to dry out.

This season’s peak may turn out to be lower than normal.

“Beyond the here and now, we are seeing milk production being flat and in some cases declining,” he said, adding there had been changes in land use in some areas.

Despite a raft of challenges facing the rural sector, Hurrell said the feedback he was getting from farmers at Fieldays - despite the heavy rain at the event - was “pretty upbeat”.

“It’s been a while since we have come to Fieldays - with Covid - and there have been a couple of false starts along the way,” he said.

“Effectively we are at the start of summer as opposed to the middle of winter [when the event is usually held].

“I think there is a pretty good theme here at the moment,” he said.

Fonterra, in its latest Global Update, said New Zealand milk production was down 3.4 per cent on a litres basis in October compared to the same period a year ago.

“Cold, wintry conditions in the first part of October contributed to a lower production peak this season,” the co-op said.

More favourable, warmer and drier conditions were seen towards the end of the month.

New Zealand milk production for the 12 months to October was down 4.3 per cent on the year prior.

Fonterra’s farmgate milk price forecast for 2023 is in a range $8.50–$10 per kgMS, with a midpoint of NZ$9.25 per kgMS.

The co-op’s forecast 2022/23 normalised earnings guidance range of 45-60 cents per share.