World’s largest dairy exporter forecasts record milk prices

The Fonterra Cooperative Group, the world’s largest exporter of dairy products, has forecast a record price of milk for the new season amid strong global demand.

Auckland-based Fonterra on Thursday raised the midpoint of its projected 2022-23 range by NZ 50 cents to NZ$9.50 (€5.63) per kilogram of milk, the highest price it has ever paid to its 10,000 New Zealand farmers shareholders. It also issued earnings guidance from 30- 45 New Zealand cents per share in fiscal year 23, up from 25 to 35 cents for the current year ending July 31.

“The strong earnings guidance for the upcoming fiscal year reflects the expected recovery in some of the key co-op markets, which have been under pressure from margins this fiscal year, along with continued positive component margins,” CEO Miles Hurrell said in a statement. “While the collaboration is in a position to forecast both strong earnings and the price of healthy milk for the coming year, significant fluctuations remain.”

If this is achieved, the 2022-23 milk price will exceed the Co-op’s projected mid-point for the 2021-22 season of NZ$9.30. Fonterra usually confirms the season payout in the full-year results announcement in September.

Dairy prices have risen along with other commodities as the world grapples with supply constraints, while a weak New Zealand dollar should also boost the country’s export earnings. But higher prices also increase Fonterra’s input costs, putting pressure on its margins.

“Interest rates and inflation are above our assumptions, as have commodity prices in response to continued strong demand for dairy products,” Hurrell said. “These increases in the input cost are affecting the cost of our debt in the short term, and they have also led to higher costs at the farm level.”

With higher milk prices raising working capital, he said, Fonterra’s overall debt position has the potential to trend upward.

Bloomberg

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