Fonterra opens season with top 3 milk price

Fonterra succeeds in meeting expectations for the 2018/2019 season. The season opens with a forecast of NZ$7 per kilo of milk solid (MS). Only in 2007 and 2010 did the basic milk price end at a higher level. Only at a later time will the dairy company provide an indication of the dividend, comparable to FrieslandCampina's performance bonus.

Healthy balance in the global market
"The global market has long shown a healthy balance between supply and demand, and that gives us the confidence to open the new season with a higher milk price," said John Wilson, chairman of the cooperative. "Demand is expected to remain good, especially from China and for the products butter and AMF. We take into account that the current level of prices, especially those for products made from milk fat, will be maintained in the coming season."

The higher milk price is accompanied by a small increase in milk supply. For example, Fonterra expects 1,5% more milk, which brings the milk pool to 1.525 million kilos of MS. Because Fonterra lost some of its market share in the New Zealand milk production has lost ground, the volume of New Zealand's total milk supply could grow faster.

It's certainly good news for Fonterra's milk supply members, but there was more reason for optimism. For example, the basic milk price for the current season will be increased to 6,75 NZ dollars per kilo of MS, a plus of 0,20 NZ dollars. March and April also produced more growing weather, which increased the number of liters of milk. This results in a forecast of 1.500 million kilos of MS. The combination of more liters of milk and a higher milk price comes at a good time for many dairy farmers, after a few financially difficult years.

Higher milk price with a price tag
However, the increase in the milk price comes at a price. It puts pressure on Fonterra's revenues. This in a year that they themselves describe as challenging. For example, an amount had to be paid to Danone and a write-off was made on the investment in it Chinese Beingmate. 

The results result in a reduction in the dividend. This will decrease from 25 to 30 cents to 15 to 20 cents per share. Overall, it yields one of the highest results in years for dairy farmers, but it is a disappointment for shareholders. It also underlines the handicap of a company like Fonterra, which has to represent the interests of both dairy farmers and external investors. The basic milk price is steadily increasing.