Fonterra lifts milk price forecast to $8.40/kg, equalling record

Fonterra chief executive Miles Hurrell. Photo / NZ Herald

Fonterra has raised its 2021/22 farmgate milk price range to $7.90 - $8.90 per kg of milk solids, with an $8.40 per kg midpoint.

The previous forecast was $7.25 - $8.75 per kg.

An $8.40 milk price would inject $13 billion into the economy, the co-op said.

The new midpoint, up from $8.00 previously, equals the highest ever milk price, which was paid in the 2013-14 season.

Chief executive Miles Hurrell said the lift was the result of continued demand for New Zealand dairy relative to supply.

"At an $8.40 midpoint, this would equal the highest Farmgate milk price paid by the co-op, and would see almost $13 billion flow into regional New Zealand through milk price payments this season," he said in a statement.

"We have seen demand from China ease over the past couple of months, while other regions have stepped in to keep demand firm.

"On the supply side, overall global milk supply growth is forecast to track below-average levels, driven by a slowdown in US production due to the increased cost of feed," he said.

"These supply and demand dynamics are supporting the current pricing levels, and a higher contract rate has given us the ability to narrow the forecast range."

Hurrell said that while the increase in milk price can put pressure on Fonterra's input costs, he remained comfortable with the co-op's 2021/22 earnings guidance range of 25-40c per share.

Hurrell said it was still early in the season and that a lot can change.

Fonterra was keeping a close eye on a number of factors.

"This includes the continued impact on global markets from COVID-19, growing inflation pressures, volatility in exchange rates, New Zealand weather conditions, and the potential impact of any geopolitical issues," he said.