Revamped Fonterra to be ‘more capital-efficient’
Fonterra chair Peter McBride says the divestment of Mainland Group is their last significant asset sale and signals the end of structural changes.
Milk production in New Zealand was down 6% last December on the same month in 2016.
Fonterra chairman John Wilson told a Northland Dairy Development Trust Conference this month that the co-op’s forecast milk intake this season is 1.48 billion kgMS, down 3.6% on last season.
“Let me remind you that last year we had a favourable late summer and autumn; we don’t expect that this year,” he said.
Wilson said the first six days average milk collection in February was 8% down on February last year.
“We’ve had great rain but we are struggling to get milk production up,” he explained.
“We’ve had to reduce our sales volumes across our entire product portfolio; the last thing you want is to be in a position where you don’t have product to sell as prices move up.”
In December, Fonterra revised its farmgate milk price to $6.40/kgMS – a drop of 35c. Forecast earnings were also reduced by 10c/share to a range of 35c to 45c, mostly due to the Danone arbitration decision where the co-op was fined $183m.
Wilson says the milk price downgrade was “a conservative decision”.
“On the milk price side we know demand has been sustained particularly out of China, across Asia and Latin America,” he added.
“Our milk price revision at the time reflected the mixed picture in our global markets and especially the good production achieved in Europe, South America, the US and Australia.”
Wilson points out that much analysis goes into these forecasts.
“With that is always a large factor of supply potentially affecting future pricing… and of course the markets have been watching.”
The last three consecutive Global Dairy Trade auctions have all gone up.
Whole milk powder price is sitting at US$3200/tonne, reflecting that the market is fundamentally balanced, said Wilson.
BNZ senior economist Doug Steel agreed. He told the conference that a milk price of $6.40/kgMS looks a lot more achievable now.
Steel noted that WMP prices were up 13% in the three auctions this year.
“It’s pretty much a recognition that NZ weather has been awful; clearly the markets recognised that it had been dry from November to December,” Steel said.
