Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The co-operative has lifted its 2021-22 forecast farmgate milk price range to $8.40 - $9.00/kgMS, up from $7.90 - $8.90/kgMS.
The midpoint of the range, which farmers are paid off goes up 30c to $8.70/kgMS.
However, the higher milk price is eroding profits from the co-op’s value added business.
Fonterra has revised its earnings guidance to 25-35c/share from 25-40c/share.
Fonterra chief executive Miles Hurrell says the lift in forecast milk Price range is good news and is an important boost to New Zealand communities.
With a midpoint of $8.70/kgMS, it would contribute more than $13.2 billion to the New Zealand economy.
“It’s the result of consistent strong demand for dairy at a time of constrained global supply,” says Hurrell.
“We’ve seen the impact of a number of events play out this first quarter. That includes the high price of feed in the US which has seen milk production growth stall and a lower-than-expected supply picture in Europe.”
Fonterra’s New Zealand milk supply is down around 3% on this time last season.
“While we expect that milk supply will be less than last season’s 1,539 million kgMS, the improving weather conditions and forecast milk collections for the balance of this season that are generally on par with last season support our current season forecast of 1,525 million kgMS,” says Hurrell.
“While we’ve seen demand soften slightly in China, global demand remains strong, and we think that will remain the case for the short to medium term.
“A higher forecast Farmgate Milk Price at this level can put pressure on our margins and therefore our earnings, which is why we’ve reduced the top end of our earnings guidance.”
