Fonterra's lifted its milk price forecast for farmers again - and has also hiked its earnings forecast - after a strong first quarter of the financial year.
The farmgate milk price forecast has been yo-yoing this season, but is currently being increased on the back of a recent recovery in global dairy prices.
Fonterra said the forecast Farmgate Milk Price midpoint for the 2023/24 season is up 25 cents to $7.50 per kilogram of milk solids, with the forecast range moving from $6.50-$8.00 per kgMS to $7.00-$8.00 per kgMS.
Just before the latest season started in June Fonterra gave an initial forecast of, in effect $8 per kgMS, but then ended up cutting that all the way back to $6.75 in the face of flagging global dairy prices.
But since then,auction prices at the GlobalDairyTrade events have revived.
In further good news for farmers - and the NZ economy - Fonterra reported that profit after tax for the first quarter of the new financial year is up 85% on this time last year to $392 million, equivalent to 24 cents per share. Earnings before interest and tax (EBIT) is up 63% to $575 million.
The co-operative said these earnings are from continuing operations and exclude the performance and impact of selling DPA Brazil.
Fonterra CEO Miles Hurrell says 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% this time last year to 21.4%.
Fonterra has lifted the midpoint of its forecast earnings for the year by 5 cents per share, with the forecast range moving from 45-60 cents per share to 50-65 cents per share. It doesn't forecast its dividends, but Hurrell did say the business was "on track for a strong interim dividend". For the last full financial year Fonterra paid a total of 50c per share.
This is the statement released by Fonterra:
Fonterra Co-operative Group Ltd today increased its forecast Farmgate Milk Price and earnings guidance for FY24 following a strong start to the year.
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 says the revised forecast reflects 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,” says Mr Hurrell.
The Co-op also reported strong earnings for the first quarter due to improved performance in all three of its sales channels.
“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,” says Mr Hurrell.
Business performance
Fonterra's profit after tax is up 85% on this time last year to $392 million, equivalent to 24 cents per share. EBIT is up 63% to $575 million.
These earnings are from continuing operations and exclude the performance and impact of selling DPA Brazil*.
Mr Hurrell says 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% this time last year to 21.4%.
“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,” says Mr Hurrell.
During the first quarter of FY24, the Co-op also continued to make progress against its strategy.
“In August, we returned 50 cents per share and unit 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.
“Our in-market teams are continuously working on new ways to commercialise our innovation expertise.
“This includes partnering with a customer in Japan to launch an adult milk powder containing our protein and designed to target muscle loss, and partnering 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.
“As part of our plan to be a leader in sustainability, we introduced a target of a 30% reduction in on-farm emissions intensity by 2030 (from a 2018 baseline) and have since been meeting with farmers to discuss how the Co-op can collectively achieve it.
“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,” says Mr Hurrell.
*Including discontinued operations, FY24 Q1 Total Group profit after tax was $346 million.
This is the dairy industry payout history.
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18 Comments
Flying high
I find it interesting to observe that those who choose not produce there own food, expect that there foods foot print to have no impact on the environment and delivered at the lowest possible cost and then take regular aim at those who do produce there food.
Fascinating human behaviour !
We are nearly self-sufficient in food, and my better half was - still is - a founding member of Our Food Network (an outfit looking ahead, not behind). Today I will spend perhaps 2 hours watering, snipping, weeding - as I do nearly every day. I built the glasshouses, the beds, the watering systems. The land we took over, farmed to hard wormless acidity, is still recovering, but now at least has microbial life.
You are, however, accurately describing a mass of city-dwellers; specialization has a lot to answer for. Beyond fossil energy - what folk like me call the 'carbon blip' - there will be an exodus of folk from cities, to the land. Can't be any other way; it was only fossil energy which allowed us to get enough stuff - including food - into them. Don't be too hard on those folk; the advertising told them 'we keep prices down'.
there will be an exodus of folk from cities, to the land.
Do you mean onto lifestyle blocks, there aren't enough of them and councils do not like rural land broken up. Although I've witnessed some amazing head in sand actions by councils
Good on you for your garden efforts. I've planted sweetcorn this season to keep it low input
Councils represent the old paradigm. No, I'm talking of the farms on the river-flats; the prime land. Beyond fossil energy, they don't work. Too little labour/hectare. I see the old nodes - rural villages at confluence-points - as likely infills. The speed of it will be the problem; all the housing is in the wrong place; much of it not efficient anyway.
Do you always have cognition problems?
Beyond fossil energy, is a different paradigm. Look around you - they're still selling NEW tractors.
Cost, cost, cost, cost, - the only cost is in energy, and materials.
Work? Most of what folk do behind screens, isn't work. And beyond the carbon pulse, won't be in demand. That includes rentiers - just sayin.
Don't shoot the messenger, and perhaps don't look down on people?
:)
I've gotten to an age and stage where I just work on facts. And what I have learned scares the s--t out of me, as a grandparent. See if you can make yourself watch this (I've got you pegged as a 'need to excuse myself not learning' type):
https://www.thegreatsimplification.com/episode/66-kim-stanley-robinson Kim Hill has interviewed him too. That goes for others reading this thread; make yourself make the time to watch that interview.
Come back after that and let's have a real discussion, eh?
Your farmers are turning many calories of fossil energy, into single calories of food energy. That is ALL they are doing, in physics terms.
And the fossil stocks are bot finite, and half-exhausted. Plus which, you have to dodge the ramifications (all the way from Fart Tax to a current Act MP) of your exhaust impacts. It's therefore an unmaintainable business model
1 The trend - because the fossil feedstock is finite - cannot continue.
2 the grandchildren of those farmers, are going to see it rather differently. Maturity is an interesting concept :)
I get that you're human - we all are; I look at my grandchildren, and know we're handing them a s--t sandwich. Are you a dairy-farmer? In debt?
But that doesn't change the facts. One of which being that it is a bigger societal problem. I'll grant you; farmers have been 'price takers' for decades, which is the rest of us screwing your 'incomes' down via supermarket pressure (you'll note that those shoppers are also increasingly unhappy - as I said, it's societal).
The next farming model will include less-to-no fossil input. That's Haber-Bosch https://en.wikipedia.org/wiki/Haber_process gone, palm kernel and phosphate gone or at least in increasing contention. Sooner we start going there, the better. Instead, the next three years are going to be cynical dodging of obligations (to our grandchildren, when you think it through). And, to be fair to farmers, there will be increasing pressure from an increasingly impoverished food-shopping public (due to the same drivers). The monocultured soils are dead enough now - but they are what the next couple of generations will have to work with. The reduction in fossil energy input, will see smaller farms (a logical reversal) and more people working them per acre (ditto).
Debt is a big inhibiter of change - in all things, via bank pressure to continue - and will have to be addressed at some point. That will be interesting (pun intended).
Go well.
No, not that we "should".
powerdown is simply pointing out how food is currently produced - using a finite fossil fuel resource that is likely past its peak. That means there will be less of this fossil fuel resource in the future and it'll cost more.
Eventually all of the fossil fuels will be exhausted. At that point food must be produced without them.
Thanks for your insight PDK, much appreciated. I understand your passion but you seem to be a one man Green Party brigade at times.
People still have to eat, people still have to be productive on their land, people still have to earn an income and look after their families wellbeing. Fonterra, OCD and likely all of the other Diary Companies have their own sustainability plans and compliance guidelines which the farmers have to adhere to. I believe most farmers are trying to do the right thing.
Farmers are having it tough and the cost if living crisis, inflation etc applies to everyone including the farmers not just the middleclass and the destitute. The extra earnings is very welcome indeed, and I for one applaud Fonterra for being agile and increasing the payout to farmers.
The grandchildren of the farmers still have to eat, the land still has be to be worked, has been and always will be the case.
Like it or not farming is the backbone of the New Zealand economy.
Never been a member, and never not a member more than now :)
Yes, they do have to eat.
Productive and earning, I have more trouble with. In a sustainable world, 'contributing equitably' might be a more apt approach.
Yes, most farmers want to 'do the right thing' - but that needs big-picture appraisal; most sustainability initiatives (Air NZ takes the cake there) are mostly greenwash.
The 'cost of living crisis' is misnamed. It's actually an overconsumption/overpopulation crisis, and can only get 'worse'. We need to re-format the whole of society, to solve that https://www.thegreatsimplification.com/episode/99-jeremy-grantham
Yes, re grandchildren and land.
NO - the 'economy' is collectively the extraction, consumption and excretion of parts of a finite planet (and country). (If it wasn't, there would be no need to mine/extract/drawdown, would there?). So it was a temporary arrangement. Try being the backbone of a happy, contented, sustainable-in-the-long-term society.
Go well.
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