Rise in Global Dairy Prices Leads to Fonterra Milk Price Hike

18 Nov 2016 --- A rise in global dairy prices has prompted Fonterra to lift its forecast milk prices, as the New Zealand co-operative reports first quarter revenues up six percent to NZ $3.8bn ($2.67bn).The move to rise forecast farmgate milk payouts by 75 cents to NZ $6 ($4.22) from NZ $5.25 ($3.69) per kilogram of milk solids, follows a 50 percent rise in global dairy prices over the past five months amid falling milk production.

Fonterra chairman John Wilson said: “We’ve seen falling production in the major exporting regions, particularly Europe and Australia, and an unprecedented decline in New Zealand milk supply due to wetter than normal spring conditions across most regions.” 

“On balance, demand continues to be firm. As a result there has been a steady improvement in global dairy commodity prices and this is reflected in the improved forecast.”

“We are very mindful that farm incomes will be affected this year because of lower milk production so we will be doing everything possible to build on our good start to the financial year and deliver the highest possible total payout to our farmers.”

An oversupply of milk and butter had meant that prices of dairy ingredients had fallen for a number of years.

Separately, Fonterra updated the market on its first quarter performance, with revenues up six percent year-on-year to 
NZ $3.8bn ($2.67bn).

Sales volumes were up two per cent to 4.9 billion litres liquid milk equivalent (LME). 

Chief executive Theo Spierings said the first quarter revenue gains were down to margin gains and cost controls.

He said: “Our operating expenses have reduced by two per cent to $621million and we continue to keep a close rein on them, in line with the financial discipline shown last year.”

Fonterra has shifted 128m litres of LME into higher value consumer and foodservice products compared to last year.

Spierings added: “The consumer and foodservice business achieved an improved gross margin of 31 per cent, up from 28 per cent.”

“This reflects the increasing strength of our brands in key markets and our focus on chef-led solutions in foodservice.”

Wilson said that Fonterra had had had a strong start to the year.

He said: “The unchanged earnings guidance range of 50 to 60 cents took into account the fact that a higher milk price had the potential to influence margins across the business.”

“However, we do expect this volatility to continue which could impact both milk price and earnings guidance. We will keep our farmers and investors updated as we move through the year.”