Fonterra raises what was already a record milk price forecast by another 50c and says it's on track to make forecast earnings guidance this year

Giant dairy co-operative Fonterra's hiked what was already a record milk price forecast and is now aiming for a $10 per kilogram of milk solids price for farmers in the current season.

Separately, Fonterrra's maintained its 40-60 cents per share earnings forecast for the 2025 financial year after reporting after-tax earnings of $263 million (16c per share) in the first quarter.

Fonterra's record farmgate milk price was $9.30 in the 2021-22 season. The co-op had just last month forecast a record for the current season of, in effect, $9.50 and now, it has raised that forecast again.

The co-op gives its forecasts as a range and then gradually narrows that range as the season progresses.

The new forecast range is for a price of $9.50 to $10.50 - so, giving a 'midpoint' price of $10. 

The move by Fonterra follows this week's GlobalDairyTrade auction, which had mixed results - but again showed strong price gains for the key Whole Milk Powder (WMP).

Fonterra's chief executive Miles Hurrell said the new forecast reflected the ongoing strength of the global market.

"We’re committed to providing farmers the highest sustainable milk price, so I'm pleased to announce another lift in the forecast for the season," he said.

"We’re seeing a recovery of demand in Greater China as domestic milk production rebalances and demand from Southeast Asia continues to be strong.

"Looking at supply, milk production out of the US and Europe continues to be impacted by local factors, while production out of most regions of New Zealand has increased.

"We’re continuing to monitor factors that may influence global supply and demand dynamics, including any potential impact from heightened geopolitical uncertainty," Hurrell said.

The co-op's forecast earnings range reflects an expectation its underlying operating profit will be stable as it offsets the higher cost of milk in the second half of the financial year through improved sales volumes, product mix and pricing, Hurrell said.

He said Fonterra has also progressed work to divest its global Consumer business, as well as integrated businesses Fonterra Oceania and Sri Lanka.

"Last month, we confirmed we are pursuing a divestment for these businesses. This work is now underway and we will share more information as it progresses.

"Our priority is maintaining momentum in our financial performance while the divestment process is underway," Hurrell said.

'A strong start'

Commenting on the first-quarter results for the co-op, Hurrell said it was strong start to the year, "especially when taking into consideration the higher cost of milk and narrower price relativities when compared to this time last year".

"While these factors have impacted our gross margins, this has been partially offset by improved product mix, with a greater allocation of milk to higher value products in our Foodservice and Consumer channels.

"We ended FY24 with well managed inventory levels, meaning we started this year with lower levels than the year prior.

"As a result, we have lower sales volumes in our Ingredients channel when compared to this time last year. This channel was also impacted by the continued narrowing of price relativities in New Zealand. This has been partially offset by the realignment of the Australian milk price with global commodity prices.

"While Foodservice and Consumer gross margins have been impacted by the higher cost of milk relative to Q1 last year, it is pleasing to see margins have improved in our global markets since the end of last financial year.

"Operating expenses for the first quarter of FY25 were in line with expectations as we continue to invest in core IT and digital infrastructure and transformation initiatives," Hurrell said.