Fonterra announces a further increase to its 2019/2020 forecast farmgate milk price

Fonterra Cooperative has announced a further increase to its 2019/2020 forecast farmgate milk price range.

The kiwi co-op today, Thursday, December 5, raised the range by 25c to $7.30/kg MS (€4.30/kg MS).

The forecast farmgate milk price range is now $7.00-7.60/kg MS (€4.12-4.47/kg MS).

Fonterra chairman John Monaghan commented, noting that the co-op has continued to earn good prices for its milk and as a result has increased the mid-point of its forecast farmgate milk price.

Continuing, he said:

The higher price reflects a global dairy market that is tipped slightly in favour of demand.

“Our New Zealand milk production is forecast to be up 0.5% on last year. Annual milk production in the other key global supply regions of the US and EU are both growing at less than 1%.

“On the demand side, global dairy trade (GDT) prices have increased by about 6% since our previous forecast. Whole milk powder (WMP) prices, a key driver of our milk price, have hit their highest level since December 2016.

“At this stage of the year, we have contracted a good proportion of our sales book and that gives us the confidence to increase the mid-point of our forecast farmgate milk price range by 25c.

“Farmers will welcome what would be the fourth highest milk price in our history. It represents a $11.2 billion cash injection into our communities.”

Fonterra CEO Miles Hurrell says that the co-op has “made good progress moving to its new strategy and has had a strong first quarter”.

He noted the following advancements:
  • Improved the underlying financial performance of the business, delivering a gross margin of $740 million, up from $646 million;
  • Continued the focus on financial discipline, reducing operating expenditure by $104 million and managing capital expenditure carefully;
  • Generated a normalised earnings before interest and tax (EBIT) of $171 million, up $145 million, and a reported EBIT of $259 million, up $233 million; and
  • Improved our free cash-flow (cash generated from our business available to reduce debt and pay interest and dividends) by $595 million compared to last year.

“I’m pleased to see this level of improvement. Our people are doing a great job at putting our strategy into action. There’s more to do but the wheels are definitely in motion,” he concluded.

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