Fonterra forecasts strong farmgate milk prices

Due to strong demand for milk products, especially in China, Fonterra Co-operative Group has announced an opening forecast farmgate milk price of NZ$7.00 per kgMS (kilogram of milk solids) for the 2018/19 season.

This is one of the highest opening forecasts, and follows a recent forecast price increase of 20 cents for the current season, to NZ$6.75 per kgMS.

Chairman John Wilson said the strong opening milk price indicates the positive global supply and demand, and would be welcomed by farmers who have been recovering from lower milk prices in 2015 and 2016.

“Demand is expected to remain strong — especially from China and for butter and AMF (anhydrous milk fat). We are expecting the global dairy market’s current prices, especially for fats, to continue throughout the new season.”

He suggested whole milk powder is increasing in price as a result of continued growth in demand from China and across Asia.

“We are also forecasting our New Zealand 2018/19 milk collections to be 1525 million kgMS, a 1.5% increase on our current forecast for this season, and we expect to see a lift in supply from the EU, US, Australia and Argentina,” Wilson said.

He attributed the growth in the co-operative’s forecast milk collections to the improved farming conditions in March and April after a challenging spring and summer.

However, while this is positive news for farmers, Wilson also suggested the increasing milk prices are putting pressure on Fonterra’s earnings.

He explained: “We are revising our forecast normalised earnings per share guidance range down to 25–30 cents per share and our forecast dividend range for the full year down to 15–20 cents per share.”

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