New Zealand dairy cooperative, Fonterra, has today (Thursday, June 23) increased its forecast farmgate milk-price range for next year.
In response to global demand, the company has increased its 2022/23 forecast by 50c to NZ$8.75-$10.25 (€5.19-€6.08)/kg of milk solids.
Fonterra said that this increases the midpoint of the range, which farmers are paid from, by 50c to $9.50 (€5.63)/kg of milk solids.
Fonterra chief executive Miles Hurrell explained that the lift in the forecast milk price reflects “the milk supply and demand picture and the current strong US dollar”.
The co-op also announced a 2022/23 earnings guidance range of 30-45c/share and provided an update on its progress towards its long-term aspirations.
Fonterra maintained its earnings guidance range of 25-35c/share for the current financial year.
Hurrell said that the update comes ahead of a expected recovery in some of the company’s key markets, coupled with ongoing favourable ingredients margins.
“The wide earnings range for 2022/23 reflects the current high level of uncertainty that comes with operating in a globally traded, volatile market,” he said.
“While the co-op is in the position to be forecasting both solid earnings and a healthy milk price for the next year, significant volatility remains. These near-term headwinds have the potential to impact some of the co-op’s targets.
“When we released our 2030 long-term aspirations in September 2021, we committed to updating farmers and the market on our progress along the way.
“We’re still on track for our 2030 financial targets, but the last few months have shown that there will be some bumps along the way,” Hurrell added.
“A series of global events have changed some of the assumptions the co-op’s aspirations were based on.
“In particular, interest rates and inflation have lifted well above our assumptions, as have commodity prices in response to the continued strong demand for dairy.
“These input cost increases are impacting the cost of our debt in the short term and have also pushed on-farm costs up. This in combination with ongoing regulatory changes, will potentially reduce milk supply volumes,” the Fonterra chief executive noted.
“As the higher milk prices lift working capital, our overall debt position has the potential to trend higher but still within our current debt parameters.
“What happens beyond next year is considerably less certain, with a wide range of possible outcomes.
“As a result, the indicative markers for future financial years which are set out in the co-op’s long-term aspirations will be updated closer to the time,” Hurrell continued.
Fonterra will provide earnings guidance for 2023/24 at the end of the 2022/23 financial year and at the same point going forward in future financial years.
“As we look out to 2030, the fundamentals of dairy – in particular, New Zealand dairy – look strong and we continue to make good progress against our long-term aspirations,” Hurrell said.
“Work also continues on finding a solution to the methane challenge, with the recent expansion of a trial of methane-reducing seaweed as a supplementary feed for cows,” he added.