Fonterra cuts farmgate forecast again, to $6.75/kg mid point

Photo / Mark Mitchell

Fonterra has, for the second time this month, cut its milk price forecast due to weak Global Dairy Trade (GDT) auction prices.

The co-op now expects a milk price for the 2023/24 season in a range of $6.00 - $7.50 per kg, with a midpoint of $6.75 per kg.

The previous forecast, issued on August 4, was for $6.25 - $7.75 per kgMS, with a midpoint of $7.00 per kg.

The fall follows a sharp decline in whole milk powder prices at this week’s GDT auction to near five-year lows.

Chief executive Miles Hurrell said GDT prices have continued to fall since it revised its farmgate milk price earlier this month, requiring the co-op to reduce its midpoint by a further 25 cents.

“GDT prices have fallen sharply since we released our opening forecast for the season in May, with the overall index down 16 per cent over that period.

“While our wide forecast range assumed movement in GDT prices, whole milk powder prices fell 10.9 per cent in the most recent trading event requiring us to revise our position again.”

Hurrell said reduced demand from key importing regions for whole milk powder was continuing to weigh on prices.

“While indications are demand will start to return over the second half of 2024, we do expect the pace of demand growth to be subdued relative to initial expectations,” he said.

“In the meantime, we will continue to respond to market signals and adjust our forecast Farmgate Milk Price to ensure that the impact of current prices and currency movements is transparent,” he said.

Prices for most of New Zealand’s main commodities - dairy, meat and logs - have been weak due to soft demand from China, the country’s biggest export customer.

The milk price is the main source of income for dairy farmers, but Fonterra’s shareholder suppliers have at least some offset in the form of what is expected to be a strong dividend for the 2022/23 year.

The co-op expects to end the year at the top end of its forecast earnings range of 65-80 cents per share.

It also expects to pay a full-year dividend at the top end of its dividend policy, which is 40-60 per cent of normalised earnings.

Fonterra’s result is due in September.

This week, Fonterra will pay 50 cents a share to farmers - being the proceeds from the sale of Chile’s Soprole.

Dairy NZ said yesterday that dairy farmers faced reduced income for the next 12 to 18 months due to weak prices.

“This is a challenging time for New Zealand’s dairy farmers and the co-op is doing all it can to support its farmers,” Hurrell said.

By early afternoon, Fonterra’s NZX-traded units had fallen by 50c, or 13 per cent, to $3.35.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.