Milk margins lift: NZ farmgate price forecast up 25c

Fonterra has lifted its NZ farmgate milk price forecast on the back of higher margins and improved demand from China.

Fonterra NZ chief executive Miles Hurrell says higher margins have lifted earnings, with gross margin up from 15.5 per cent this time last year to 21.4 per cent.

Fonterra New Zealand has lifted its 2023-24 forecast midpoint farmgate milk price by 25 cents to $NZ7.50 a kilogram milk solids, equal to $7/kgMS Australian.

The co-operative’s forecast milk price range has now narrowed from $NZ6.50-$NZ8.00/kgMS to $NZ7.00-$NZ8.00/kgMS.

Fonterra NZ chief executive Miles Hurrell said the uplift reflected recent strengthening in demand for reference commodity products from key importing regions, including improvement in demand from China during the first quarter.

“Global Dairy Trade (auction) prices have lifted, and our sales book is also well contracted for this time of year, giving us confidence to increase our forecast farmgate milk price,” Mr Hurrell said.

“It’s still early in the year, with potential for further volatility in commodity prices, so we will continue to watch market dynamics closely and provide updates as needed.”

Fonterra also reported strong earnings for the first quarter due to improved performance across its ingredients, food service and consumer sales channels.

“As a result, we have lifted the midpoint of our forecast earnings for the year up 5 cents per share, with the range moving from 45-60 cents per share to 50-65 cents per share,” says Mr Hurrell.

Fonterra’s profit after tax is up 85 per cent on this time last year to $NZ392 million, equivalent to 24 cents NZ per share.

Mr Hurrell says higher margins had driven the lift in earnings, with gross margins up from 15.5 per cent this time last year to 21.4 per cent.

“Our food service and consumer channel performance is due to improved margins as well as the co-op allocating more milk to these higher returning channels,” he said.

“We’ve also seen continued strong performance in New Zealand ingredients, but lower margins in Australia ingredients.

“Looking ahead, we expect these higher margins to continue throughout the first half of the year, before tightening across all three sales channels in the second half of the year, due to higher input costs and the gap between reference and non-reference product prices narrowing.”