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Milk price Fonterra rises to all-time high
The positive conditions on the dairy market have made Fonterra decide to significantly increase the milk price forecast for the current season. The member dairy farmers of the New Zealand dairy cooperative can expect a record high milk price. Fonterra is optimistic about the market, but also mentions a number of uncertainties that could throw a spanner in the works.
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Fonterra has increased the range of milk price forecast from NZ $7,25 – $8,75 to NZ $7,90 – $8,90 per kilo of milk sollids (=11,50 kilo). The midpoint of the range is NZ $8,40. In our terms, this is a milk price that moves around €40 per 100 kilos. With this prognosis, a record high milk price is in the making. In that case, the approximately 10.500 member dairy farmer may jointly divide about NZ $13 billion. The expected dividend will remain flat in a range of 25 to 40 New Zealand cents per share.
Higher contract prices in dairy
The prognosis for the current season (which runs until June) can of course still be adjusted, but Fonterra is optimistic for the coming months. The Global Dairy Trade has also shown a strong rise in recent times. The dairy cooperative says that the long-term contract prices can also be concluded at significantly higher levels.
In an explanation, CEO Miles Hurrel says that the increase is a result of the good demand for New Zealand dairy in relation to the tight supply. Strong Chinese demand has declined somewhat in recent months, but that is offset by good sales in other export markets, Hurrel says.
Milk supply is stagnating worldwide
In addition, the Fonterra CEO expects global milk supply to remain below the long-term average this year. This is due to a drop in production in the United States as a result of high feed costs. Milk production in Northwestern Europe is also faltering for this reason, although Hurrel does not specifically mention this.
Finally, Fonterra does not forget that the dairy market also has four uncertainties. First of all, Hurrel mentions the coronavirus that is flaring up again in various places in the world. He also mentions the weather conditions in New Zealand. In recent years, these have been erratic, alternating periods of extreme drought and heavy precipitation. Finally, the CEO mentions the economic uncertainty in the form of fluctuating exchange rates and rising inflation.