Milk price Fonterra up thanks to hoarding China

Compared to the last estimate in October, the milk price forecast has been increased by 40 cents to $7 per kilo of milk (11,5 liters). The range has been set at $6,70 to $7,30. This is the third time that Fonterra has adjusted its forecast upwards, after starting in May with a forecast of $6,15. The expected dividend is set at 20 to 35 dollar cents per share.

In the meantime, the milking season is almost halfway over and Fonterra is talking about a solid start. The New Zealand dairy cooperative is highly dependent on exports, but despite the corona crisis, export volumes are not disappointing. Fonterra owes this to Chinese purchasing interest in whole milk powder in particular, the most important product in the milk price. During the last one Global Dairy Trade, which took place last week, the Chinese buying urge was again visible and this resulted in higher prices. 

Already sold a lot in advance
Nevertheless, Fonterra also has concerns about the negative impact of corona on the global dairy market. In addition, milk production in New Zealand is growing, especially on the North Island where the majority of milk production is located. Last year New Zealand suffered from persistent drought, this year the weather conditions are milder. Another area of ​​concern is the appreciation of the New Zealand dollar against the US currency. This can hinder exports.

With more than six months of uncertainty ahead, Fonterra still dares to increase the milk price forecast. Fonterra claims its order book is well filled. The volumes are comparable to the same time last year when the corona crisis was not yet a disruption.

CEO Miles Hurrell, explaining the milk price forecast, said that revenues this year are in line with targets. Gross profit increased by $72 million to $270 million in the first quarter (August through October) of the fiscal year, compared to the same period last year.