Fonterra has upgraded its milk price forecast, reported an 85 per cent lift in its first-quarter profit and raised its full-year earnings forecast.
The forecast farmgate milk price midpoint for the 2023/24 season is up 25 cents to $7.50 per kg of milksolids (kgMS), with the forecast range moving from $6.50-$8 per kgMS to $7.00-$8.00 per kgMS.
Fonterra chief executive Miles Hurrell said the revised milk price forecast reflected recent strengthening in demand for reference commodity products from key importing regions, including improvement in demand from China during the first quarter.
“Global Dairy Trade prices have lifted, and our sales book is also well contracted for this time of year, giving us confidence to increase our forecast farmgate milk price.
“It’s still early in the year, with potential for further volatility in commodity prices, so we will continue to watch market dynamics closely and provide updates as needed.”
First-quarter earnings were strong due to improved performance in all three of Fonterra’s sales channels.
As a result, Fonterra lifted the midpoint of its forecast earnings for the year up 5 cents per share, with the range moving from 45-60 cents per share to 50-65 cents per share.
Fonterra’s first quarter profit after tax was up 85 per cent on this time last year to $392 million, equivalent to 24 cents per share.
Earnings before interest and tax were up 63 per cent to $575m.
The earnings were from continuing operations and excluded the performance and impact of selling DPA Brazil.
Hurrell said higher margins across the co-op’s ingredients, foodservice and consumer channels have driven the lift in earnings, with gross margin up from 15.5 per cent this time last year to 21.4 per cent.
“Our foodservice and consumer channel performance is due to improved margins as well as the co-op allocating more milk to these higher-returning channels.
“We’ve also seen continued strong performance in New Zealand Ingredients, but lower margins in Australia Ingredients.
“Looking ahead, we expect these higher margins to continue throughout the first half of the year, before tightening across all three sales channels in the second half of the year, due to higher input costs and the gap between reference and non-reference product prices narrowing.
“Our increased forecast earnings guidance of 50-65 cents per share reflects this and we are on track for a strong interim dividend.”
In August, Fonterra returned 50 cents per share and unit following the completion of the sale of Soprole.
Separately, rural lending specialist Rabobank said the global dairy market appears to be transitioning to the next phase in its cycle, with prices expected to move higher through 2024.
While the market remained finely balanced, and uncertainty surrounds underlying demand for 2024, Rabobank anticipates some upside for New Zealand milk prices over the remainder of the season and has now lifted its farmgate milk price forecast for 2023/24 to $7.75/kg.
In its report “Shifting to the next phase of the cycle”, Rabobank said the global dairy market continued to walk a tightrope of limited “new” milk and sluggish demand.