Soaring whole milk powder (WMP) prices are lifting forecast milk price to Fonterra farmer suppliers but it is also affecting the co-op’s profitability.
While the outlook for dairy looks great, the end of the season is still nine months away, he notes.
"Retaining the wide range and the $8 midpoint is therefore sensible," Penny told Dairy News.
"Dairy products sold so far this season have fetched very healthy prices and Fonterra has banked most of it."
Penny says the outlook looks strong; demand is healthy and foreign exchange is playing ball.
He says this season's payout is definitely looking to be a step-up from last season.
Fonterra's milk price range for this season remains within a range of $7.25 - $8.75/kgMS, with a midpoint of $8 per kgMS.
For last season the co-operative has announced a final payour of $7.74/kgMS - comprising a milk price of $7.54 and a 20c dividend.
ASB economist Nat Keall says it's definitely interesting that Fonterra is maintaining the same range. Keall points out that by this point in the last two seasons they had made two or three revisions, and had a narrower range.
"Having said that, the wide range largely reflects that there is still an awful lot of uncertainty hanging over the season, with moves by Chinese buyers causing some sizable swings and the strength of NZ spring production looming large," he told Dairy News.
"Our forecast is near the higher end of Fonterra's range around the $8.20/kgMS, but whatever the case, it's really positive for farmers that even the low end of the forecast range would represent a really strong season."
Hurrell says the strong milk price is likely to continue.
"A high milk price is good for farmers and good for the New Zealand economy. However, this does have the potential to squeez our sales margins and impact earnings."
However, the Covid pandemic remains at play.
Hurrell says the impact of Covid-19 continues to be felt, particularly across the supply chain.
"We expect competitive tension in the global shipping market to continue this financial year.
"We have largely been able to mitigate this thanks to the strength of our Kotahi partnership which has allowed us to keep our product moving through the supply chain."
Focus on Value
Fonterra chief executive Miles Hurrell.
Fonterra is moving through its business reset and into a new phase of growing the value of its business, says chief executive Miles Hurrell.
He says the last three years have been about resetting the business.
"We've stuck to our strategy of maximising the value of our New Zealand milk, moved to a customer-led operating model and strengthened our balance sheet.
"The results and total payout we've announced show what we can achieve when we focus on quality execution and an aligned co-op.
"Although the higher milk price and tightening margins put pressure on earnings in the final quarter, this is a strong overall business performance, allowing us to deliver $11.6 billion to the New Zealand economy through the total payout to farmers."