Fonterra lifts milk price forecast, raises first-quarter earnings

Fonterra has just released its first quarter performance update. Photo / NZ Herald

Fonterra has lifted the mid-point of a narrowed milk price forecast to $7.00 per kg of milk solids from the previous mid-point of $6.80, driven by demand out of China.

The co-op also raised its first-quarter normalised earnings and kept to its 2020/21 earnings forecast of 20 to 35 cents per share.

Fonterra's new milk price range is $6.70/kg to $7.30/kg, from a previous range of $6.30/kg to $7.30/kg.

"This means the midpoint of the range, which farmers are paid off, has increased to $7.00 per kg," chief executive Miles Hurrell said.

"China is continuing to recover well from COVID-19 and this is reflected in recent Global Dairy Trade auctions with strong demand from Chinese buyers, especially for whole milk powder, which is a key driver of the milk price.

"The impact of COVID-19 continues to play out globally, and we continue to have a watchful eye on the increasing Northern Hemisphere milk production and the New Zealand dollar," he said.

However, Hurrell said Fonterra had contracted a good proportion of its sales book for this time of the season, which gave it the confidence to narrow and lift the bottom end of the forecast farmgate milk price range.

At today's forecast, the co-op will contribute around $10.5 billion to the New Zealand economy this year.

Listen to Jamie Mackay interview Fonterra chief executive Miles Hurrell on The Country below:

The co-op had a solid start to the first quarter, delivering total group normalised earnings before interest and tax (EBIT) of $250 million, up $72 million on last year.

"Despite ongoing market disruptions from COVID-19, we are continuing to build on the momentum achieved in the last financial year and this can be seen in the progress we are making against our 2021 priorities," he said.

Hurrell says the Co-operative is confident in its performance and is on track to deliver on its earnings guidance.

"However, there are still a number of risks we are keeping a close eye on and for this reason we have made the decision to maintain our current forecast earnings range," he said.