Fonterra lifts forecast milk price, tips ‘strong’ full-year dividend

Fonterra also lifted its advance rate payment schedule, which would see farmers paid more. Photo / Supplied

Fonterra has upped its forecast milk price and says it’s on track for a strong full-year dividend.

Earlier this week, global dairy prices at the fortnightly Global Dairy Trade (GDT) auction surged, resulting in the biggest percentage jump in more than three years.

The price index rose 5.5% to US$3,920 (NZ$6,368) a metric tonne (MT) – the most significant percentage jump since March 2021.

Whole milk powder, which has the biggest influence on Fonterra’s milk price and makes up half of the auction, jumped 7.2% to US$3,482/MT.

Skim milk powder – the dairy giant’s second reference and making up a third of the auction by volume – increased 4% to US$2,636/MT.

While most analysts had picked a forecast price around $8.40 per kilogram of milksolids (kgMS), Fonterra started the season taking a “cautious approach” with its opening forecast of between $7.25 and $8.75/kgMS, with a midpoint of $8/kgMS.

After Wednesday’s GDT, NZX dairy analyst Rosalind Crickett said, all eyes would be on the co-op to see whether it updated its forecast.

Based off the latest GDT results, the NZX’s calculator has a farmgate milk price of $9.57/kgMS.

On Friday, the dairy giant increased the midpoint of its forecast payout to $8.50/kgMS while maintaining a wide range of between $7.75/kgMS and $9.25/kgMS.

It also lifted its advance rate payment schedule, which would see farmers paid 10% more of the forecast price from December paid January compared to other seasons.

Chief executive Miles Hurrell said it was still early in the season with a relatively small portion of its sales book contracted, so Fonterra was maintaining a wide forecast range.

The co-op’s balance sheet had allowed it to make “several enhancements” to the advance rate schedule over the past two seasons.

Fonterra also said its earnings from the 2024 financial year were forecast to be at the top end of the 60c to 70c per share range.

Hurrell said that as the co-op looked to close out the books for the year, it was becoming clear that it had maintained strong performance across the 12 months.

“We’re indicating we expect our earnings to be at the top end of our forecast range, and this puts us on track for a strong full-year dividend,” he said.

Its full-year results will be announced in late September.

Synlait, which generally moves after Fonterra does, has not adjusted its payout since its opening forecast in May.

After the auction, BNZ upped its forecast to $8.50/kgMS and said questions remained around what lay ahead.

It was difficult to know how much of the current demand was due to restocking and potential concerns around global milk supply.

“Demand driven by those factors may not be sustained.”

BNZ said it was also conscious of dairy prices pushing ahead of the likes of international grain prices, which often elicited a supply response in time.

“Something to bear in mind if dairy prices continue to squeeze higher in the near term,” BNZ said.

-BusinessDesk