Dairy cooperative Fonterra announced an increase in its forecast for farmgate milk prices, driven by rising commodity prices within the food and beverage industry trends.
In a recent statement, the New Zealand-based company highlighted a NZ$0.50 elevation in the mid-point of its 2024/25 season forecast for farmgate milk prices, while also suggesting that earnings for the 2024 financial year are anticipated to be “at the top end” of the previously stated range of 60-70 cents per share.
CEO Miles Hurrell attributed these announcements to the recent uptick in Global Dairy Trade (GDT) prices, alongside the stability of Fonterra’s balance sheet.
“Since our initial FY25 season forecast for farmgate milk prices was published in May, GDT prices have improved,” Hurrell commented. “We have adjusted our forecast range accordingly, with our midpoint rising by fifty cents to NZ$8.50 per kgMS.”
Hurrell emphasized that it is still early in the season, noting that a relatively small portion of their sales book is contracted. Therefore, they are maintaining a broad forecast range. The updated forecast range is now $7.75-$9.25 per kgMS, an increase from the previous $7.25-$8.75 per kgMS.
In another positive development, Fonterra has enhanced its “advance rate” payment structure, allowing farmers to receive higher payments for their milk earlier in the season. “The adjustments announced today will enable farmers to receive 10% more of the 2025 financial year forecast farmgate milk price as an advance payment in January compared to previous seasons, thereby supporting their on-farm cash flow,” he added.
Moreover, Fonterra indicated its expectation that earnings from continuing operations for the 2024 financial year will be at the upper end of the previously outlined range of NZ$0.60-0.70 per share. Hurrell stated, “As we approach the end of the fiscal year, it has become evident that we have sustained strong performance throughout FY24.” The company is set to release its financial results next month.
In May, Fonterra announced a strategic shift, revealing plans to exit its consumer-facing business to focus on ingredient offerings, which they referred to as a “step-change in strategic direction.” Hurrell noted that this transition is expected to take “at least” 12 to 18 months to accomplish, given the “unsolicited interest” in various facets of these businesses. He stated, “We believe we can enhance value for the co-op by concentrating on being a B2B dairy nutrition provider while collaborating closely with customers through our high-performing ingredients and foodservice channels.”
In summary, Fonterra’s proactive adjustments to its pricing strategies and operational focus not only reflect current trends within the food and beverage industry but also position the cooperative favorably for future growth and engagement within the food and drink business sector.
