Strong season start prompts Fonterra to lift FY24 forecast farmgate milk price, earnings outlook

By Teodora Lyubomirova

- Last updated on GMT

Image: Getty/georgeclerk
Image: Getty/georgeclerk

Related tags Farmgate milk price Fonterra Dairy New zealand Australia Milk

Fonterra Co-operative Group Ltd today increased its forecast farmgate milk price and earnings guidance for FY24 after demand from key markets rebounded.

The forecast farmgate milk price midpoint for the 2023/24 season is up 25 cents to $7.50 per kgMS, with the forecast range moving from $6.50-$8.00 per kgMS to $7.00-$8.00 per kgMS.

Fonterra CEO Miles Hurrell said the revised forecast reflected recent strengthening in demand for reference commodity products from key importing regions, including improvement in demand from China during the first quarter of the current season. 

“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,” Hurrell said.

“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,” he added.

The co-op also reported ‘strong earnings’ for the first quarter due to improved performance in all three of its sales channels. Higher margins across ingredients, foodservice and consumer channels have driven the lift in earnings, with gross margin up from 15.5% this time last year to 21.4%. 

Fonterra's profit after tax is up 85% on this time last year to NZ$392m, equivalent to 24 cents per share. EBIT is up 63% to NZ$575m. These earnings exclude the performance and impact of selling DPA Brazil.

“As a result, we have lifted the midpoint of our 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,” Hurrell said.

“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.”

Hurrell added that the co-op has continued to make progress against its strategy, having returned 50 cents per share and unit in August following the completion of the sale of Soprole. “We also recently completed the divestment of DPA Brazil, as part of our plan to focus on our New Zealand farmers’ milk.”

He hinted that the co-op is exploring new avenues to grow into, citing the recent launches of an adult milk powder designed to target muscle loss, and revealed the company has partnered with a customer in Greater China ‘to develop a cake containing our probiotics in response to rising consumer interest in the health benefits of probiotics’. 

He also highlighted the co-op's scope 3 emissions target, which was revealed last month.

“We are pleased with the results for the first quarter of FY24 and see positive momentum across our business as we work towards our 2030 goals,” Hurrell concluded.

Related topics Manufacturers Fresh Milk Fonterra

Related news

Show more