NEW ZEALAND – New Zealand’s Fonterra has raised its forecast for the farmgate milk price in the 2023-24 season, citing robust global dairy prices and heightened demand in the Middle East and Southeast Asia.

The revised forecast now ranges between NZ$7.30 and NZ$8.30 per kilogram of milk solids (kgMS), an upward adjustment from the previous NZ$7.00 to NZ$8.00 per kgMS.

Miles Hurrell, CEO of Fonterra, attributed the price increase to a recent surge in demand, primarily from the Middle East and Southeast Asia, for the company’s reference commodity products.

This increased demand has resulted in a notable uptick in Global Dairy Trade (GDT) prices, with a 10% rise since Fonterra’s last Farmgate milk price update in December. Whole milk prices have experienced an even more substantial increase, rising over 11%.

Despite acknowledging the current strength in demand, Hurrell also highlighted uncertainties related to geopolitical instability and potential disruptions in the supply chain.

“These factors could potentially impact demand from key importing regions, introducing an element of caution into Fonterra’s outlook.”

Fonterra has reiterated its earnings guidance for the fiscal year 2024, maintaining an outlook of 50-65 New Zealand cents per share.

This follows the company’s earlier adjustments to both its earnings and farmgate milk price forecasts, driven by a positive trend in demand for reference commodity products.

In the first quarter, Fonterra reported a significant jump in profit after tax, reaching NZ$346 million (US$212.55 million), reflecting a robust 61.7% increase.

This notable boost was attributed to strong margins across the company’s three primary sales channels – ingredients, food service, and consumer.

Fonterra anticipates the continuation of higher margins in the first half of the year, with an expected tightening across all three channels in the latter part of the fiscal year. The company remains on track for a “strong” interim dividend.

“Fonterra’s strategic response to dynamic global demand trends underscores the agility required in the dairy industry,” the company noted.

“The company’s commitment to optimizing performance and capitalizing on market opportunities positions it well to navigate the evolving landscape and deliver value to shareholders.”

The dairy firm attributed the lift in quarterly earnings to higher margins across the company’s three main sales channels – ingredients, food service, and consumer.

“Looking ahead, we expect these higher margins to continue throughout the first half of the year, before tightening across all three sales channels in the second half of the year,” Chief Executive Miles Hurrell said.

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