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.
After delivering a solid half-year result last week, Fonterra says geopolitical events outside the control of the co-operative remain a concern.
Chief executive Miles Hurrell says the co-op's business spans the globe and the impact of tariffs remains to be seen.
He reminded farmers that "we live in a volatile world". Fonterra comes out with its 2025-26 season forecast milk price in late May.
DairyNZ says farmers might be in for a second season where the milk payout stays high, forecasting a $10.13/kgMS payout for the new season, which starts June 1. With just over two months left to go this season, Fonterra is forecasting a milk price of $10/kgMS.
Another $10 milk price next season will break the trend of a quarter of a century, when high dairy payouts have been followed by a significant drop the following season.
Hurrell says he has seen commentary that "reflects another potential solid season".
However, he says farmers must keep an eye on the geopolitical events.
"We deal in the international market, and we are living in a volatile world."
Hurrell adds that Fonterra interim results - an 8% increase in profit after tax to $729 million and a 16% rise in operating profit to $1.1 billion - shows that the co-op is well positioned to face the geopolitical headwinds.
"We play in most markets globally, so what goes regarding tariffs will have an impact right across the board," says Hurrell.
"We've done well in the last six months, so we're well set up to navigate the challenges. These things are outside our control, we just have to navigate accordingly."
He says Fonterra is committed to delivering the highest sustainable farmgate milk price to farmers. For the current season, the forecast farmgate milk price range has been narrowed from $9.50-$10.50/kgMS to $9.70 - $10.30/kgMS, with the midpoint holding at $10/kgMS.
"We're seeing good demand for our quality products, and our teams have worked hard to optimise our product portfolio to capture value from the market conditions, leaving us well contracted for the season," says Hurrell.
"We have also optimised the current season's advance rate schedule to get cash to farmers sooner, underpinned by our balance sheet strength."
In terms of milk flows, Fonterra's forecast milk collections for the year are up 2.7% on this time last year to 1,510 million kgMS.
This follows favourable pasture growth across most of New Zealand earlier in the season, says Hurrell, noting many parts of the country are experiencing very dry conditions.
While predicting a payout of around $10.13/kgMS next season, DairyNZ says farm working expenses sit at $5.94/kgMS which is reflected in the breakeven milk price of $8.57/kgMS.
DairyNZ head of economics Mark Storey said international supply and demand appear to be in good balance currently.
But he's also giving farmers some cautionary advice.
"All forecasts made at the beginning of the season come with a strong caveat - a lot can and often does change throughout a season, as costs and returns to dairy are in many cases driven by international factors well outside the individual farmer's control," says Storey.
