Fonterra's now forecasting a potential record $9.50 farmgate milk price and says it will go ahead with plans to sell its consumer businesses including household name brands such as Anchor and Mainland

Giant dairy co-operative Fonterra's now forecasting a potential record farmgate milk price of $9.50 per kilogram of milk solids (kgMS) for the current season and also says it will go ahead with plans to sell global consumer businesses, including household name brands such as Anchor and Mainland.

On Monday Fonterra both raised and narrowed its forecast range for the milk price in the current (till May next year) season.

The range was narrowed to between $9 and $10 from $8.25-$9.75, meaning the 'midpoint' of the new forecast is $9.50, up from $9.

If the new midpoint is achieved, it will be a record - beating the $9.30 paid in the 2021-22 season.

The latest increase in milk price forecast follows another strong GlobalDairyTrade auction result last week. Overall prices are up more than 13% since the start of 2024.

And Fonterra's also announced it will definitely proceed with plans - first signalled in May this year - to sell its global consumer business, which includes household name brands such as Anchor and Mainland.

The co-op's decided to run what's often referred to as a 'dual-track process' by which it will plan both for a trade sale and an initial public offering (IPO), IE a sale of the shares followed by a stock market listing. It will then decide what offers the best return and go with that.

Fonterra's already indicated that it's looking at a significant capital return to both farmer shareholders and holders of the Fonterra Shareholders Fund units.

Corporate advisers Northington Partners in an independent review of Fonterra's annual performance conducted for Fonterra shareholders and unit holders estimated that a successful sale of the consumer businesses could produce a cash payout of around $3 billion, or about $2 per share.

Commenting on the sales plans, which include the Fonterra Oceania and Fonterra Sri Lanka businesses, Fonterra chief executive Miles Hurrell said the co-op had been working with a team of advisors to assess potential divestment options, the assets and businesses in scope, and the best pathway to maximise value for Fonterra.

"We have received meaningful buyer interest in the businesses in scope for divestment, which is testament to their strength and potential," Hurrell said.

"Through the scoping phase, we have assessed both a trade sale and IPO as attractive divestment options and will now prepare for a sale process which will pursue both options."

Hurrell said advisors have been selected to assist in managing this process.

"We will thoroughly test the terms and value of both a trade sale and IPO with the market before seeking support from farmer shareholders for a divestment option through a vote.

"A final decision on which divestment pathway to pursue will be based on several factors, including which option will result in optimal long-term value for the Co-op."

Hurrell said Fonterra would provide updates over the coming months. Back in May Fonterra had indicated a sale could take 12-18 months.

Commenting on the increased milk price forecast, Hurrell said "demand has been seen out of China, where there are indications that domestic production is below expectations, and also in Africa, the Middle East and Southeast Asia".

"Looking ahead, we’ll closely monitor any factors that could have an impact on supply and demand. This would include any significant change to milk supply in New Zealand over the second part of the season which could lead to pressure on global milk prices.

"We’ll also continue to utilise our scale and flexibility when it comes to optimising our product mix, including putting more of our farmers’ milk into the higher returning products to capture the value from every drop."

This is the dairy industry payout history.