NEW ZEALAND – In a robust display of financial strength, Fonterra Co-operative Group Ltd has raised its forecast Farmgate Milk Price and earnings guidance for the 2023/24 fiscal year following a promising start to the year.

The New Zealand-based dairy giant revealed a 25-cent increase in the forecast Farmgate Milk Price midpoint, now set at US$7.50 per kilogram of milk solids (kgMS), with the range adjusted to US$7.00-US$8.00 per kgMS.

CEO Miles Hurrell attributes the upward revision to a surge in demand for reference commodity products, particularly from key importing regions such as China.

“The improvement in demand during the first quarter has been a driving force behind the positive adjustment, with Global Dairy Trade prices on the rise and the sales book well-contracted for this time of the year.”

Hurrell, however, maintains a cautious outlook, acknowledging the potential for further volatility in commodity prices throughout the year.

“It’s still early in the year, with potential for further volatility in commodity prices, so we will continue to watch market dynamics closely and provide updates as needed,” he stated.

In addition, the Co-operative reported strong earnings for the first quarter, showcasing a profit after tax up by an impressive 85% from the same period last year, reaching US$392 million or 24 cents per share.

The earnings exclude the impact of selling DPA Brazil, reflecting the company’s commitment to focus on its New Zealand farmers’ milk.

The positive financial results are attributed to improved performance across all three sales channels – Ingredients, Foodservice, and Consumer.

Notably, gross margin has seen a significant boost, rising from 15.5% to 21.4% compared to last year. Hurrell highlighted that higher margins in the Foodservice and Consumer channels are due to improved margins and increased milk allocation.

While the Co-operative anticipates continued higher margins in the first half of the year, Hurrell cautioned about a potential tightening in the second half.

“Factors such as higher input costs and the narrowing gap between reference and non-reference product prices could impact profitability across all three sales channels.”

Fonterra’s strategic moves, including divesting from DPA Brazil and returning 50 cents per share and unit after selling Soprole, have contributed to its strong financial performance.

The company’s commitment to sustainability is underscored by its target of a 30% reduction in on-farm emissions intensity by 2030.

As Fonterra advances toward its 2030 goals, the positive momentum seen in the first quarter of FY24 positions the dairy giant favorably for the remainder of the fiscal year, with farmers expected to benefit from the increased forecast Farmgate Milk Price.