Thursday, 05 November 2020 17:26

Covid cloud hanging but China demand strong

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Covid-related uncertainty continues to affect global dairy markets but strong demand from China is helping New Zealand farmers.

Fonterra chief executive Miles Hurrell says milk powders are proving resilient.

This allowed the co-op to recently increase the mid-point of the forecast farmgate milk price range to $6.80/kgMS.

“As it’s still relatively early in the season and we know a lot can change, we’ve still got a range of plus or minus 50 cents,” he told Fonterra’s annual meeting in Masterton today.

But there are some unknowns: how exchange rates will play out, milk supply from the EU and US and how Covid behaves globally.

Hurrell says obviously, the higher milk price puts extra pressure on Fonterra earnings but he says the co-op remains confident in its forecast earnings range is 20 – 35 cents per share.

“There are a few key assumptions that we’ve built into this forecast that are worth being aware of.

“The first is that we’ll see Asia and Greater China driving an improved trading performance as COVID-19 restrictions ease.

“The second assumption is that we’ll have lower financing costs and less significant one-off items, like impairments.

“And we are also assuming that we won’t see the same kind of price relativities between reference and non-reference products in Ingredients as we did in the second half of 2020 when the milk price softened.

“Whether or not these assumptions eventuate is not 100% certain.”

Hurrell says the co-op must stay on strategy, being agile and drawing on strengths across the supply chain to manage and adapt to changes around the globe.

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