Fonterra has revised its forecast payout for the 2018/19 season from $6.25-$6.50 per kgMS to $6.00-$6.30 per kgMS.
It’s also reported its first quarter performance:
- Forecast Farmgate Milk Price range: $6.00 – $6.30 per kgMS
- Forecast earnings per share range: 25-35 cents
- Forecast New Zealand milk collections: 1,550 million kgMS, up 3%
- Sales volumes: 3.6 billion LME, down 6%
- Revenue: $3.8 billion, down 4%
- Gross margin: $646 million, down $14 million
- Gross margin percentage: 17%, up from 16.6%
- Operating expenses: $656 million, up 3%
- Capital expenditure: $188 million, up $46 million
Fonterra Chairman John Monaghan says the revision in the forecast Farmgate Milk Price range is due to the global milk supply remaining stronger relative to demand, which has driven a downward trend on the GlobalDairyTrade (GDT) index since May.
“Since our October milk price update, production from Europe has flattened off the back of dry weather and rising feed costs. US milk volumes are still forecast to be up one per cent for the year,” says Mr Monaghan.
“Here in New Zealand, we are maintaining our forecast collections at 1,550 million kgMS. NIWA is saying its likely we will see an abnormal El Nino weather pattern over summer and this could impact our farmers’ milk production.
“Demand from China and Asia remains strong. However, we are seeing geopolitical disruption impacting demand from countries that traditionally buy a lot of fat products from us.
“Today’s forecast range assumes dairy prices will firm across the balance of the season. This is consistent with the views of other market commentators.
“There are still a number of unknowns in the global demand and supply picture and we recommend farmers budget with ongoing caution. Fonterra’s Advance Rate has been set off a milk price of $6.15 per kgMS.” . .
The drop in the forecast price isn’t a surprise.
The small lift in the GlobalDairyTrade price index this week, follows months of price falls.
While the drop is neither unexpected nor welcome, most farmers and shareholders would be reasonably relaxed about a payout of $6 or more.
The supply of milk has been up across the country but successive days of heavy rain over the last few weeks will have had an impact. Few herds will have been able to maintain peak supply for long and milk production will be dropping faster than budgeted for.