New Zealand’s largest dairy company, the Fonterra Co-operative Group, has increased its forecast for milk price as it confirmed divestment plans for certain business divisions.
The co-op has raised the midpoint of the 2024/25 season forecast farmgate milk price from $9.00 per kilograms of milk solids (kgMS) to $9.50/kgMS.
The co-operative also announced a narrowing of the forecast range from $8.25 – $9.75/kgMS to $9.00 – $10.00/kgMS, “reflecting the fact that more of the FY25 sales book has been contracted since the last forecast farmgate milk price update in September”.
Fonterra
Miles Hurrell, Fonterra chief executive, explained that the improved outlook has largely been driven by strong demand for reference commodity products, which has helped to push prices up in recent Global Dairy Trade (GDT) auctions.
“This demand has been seen out of China, where there are indications that domestic production is below expectations, and also in Africa, the Middle East and Southeast Asia.
“Looking ahead, we’ll closely monitor any factors that could have an impact on supply and demand.
“This would include any significant change to milk supply in New Zealand over the second part of the season which could lead to pressure on global milk prices.
“We’ll also continue to utilise our scale and flexibility when it comes to optimising our product mix, including putting more of our farmers’ milk into the higher returning products to capture the value from every drop,” he said.
Fonterra has also confirmed that it will proceed with the sale of its global consumer business, as well as integrated businesses Fonterra Oceania and Fonterra Sri Lanka.
Hurrell said that the decision followed “a detailed scoping phase” by the co-op.
“Since our announcement in May 2024, we have been working with our team of advisors to assess potential divestment options, the assets and businesses in scope, and the best pathway to maximise value for our co-op.
“This work, coupled with the confidence we have in our revised strategic direction, has confirmed a divestment of our global consumer and associated businesses is in the best interests of the co-op.
“Our revised strategy will see us prioritise our ingredients and foodservice businesses, creating a more focused and higher performing co-op,” he said.
Hurrell said that Fonterra has “received meaningful buyer interest in the businesses in scope for divestment”, which he said “is testament to their strength and potential”.
“Through the scoping phase, we have assessed both a trade sale and initial public offering (IPO) as attractive divestment options and will now prepare for a sale process which will pursue both options.
“We will thoroughly test the terms and value of both a trade sale and IPO with the market before seeking support from farmer shareholders for a divestment option through a vote.
“A final decision on which divestment pathway to pursue will be based on several factors, including which option will result in optimal long-term value for the co-op,” Hurrell said.
Fonterra said that it will provide updates over the coming months as this programme of work progresses.