Fonterra expects market conditions to keep shifting as it lifts its earnings forecast and lowers its expected milk collection.
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Demand pressures expected to help Fonterra earnings
Fonterra gives its expected earnings a nudge in the right direction for the 2022/23 season. PHOTO: TIM CRONSHAW

The co-operative changed its forecast earnings earlier this month to 45 to 60 cents per share, from 30cps-45cps, for the 2022-23 season.

Overall milk collected for the season has been recalculated to go from 1510million kilograms of milksolids to 1495million kilograms.

There is no further change to the milk payment after Fonterra last month adjusted its range to $8.50-$10/kg, from $8.75-$10.25/kg, for a new midpoint of $9.25/kg at a stage when global prices fell.

Fonterra chief executive Miles Hurrell said the forecast earnings lift was due to a continuation of ongoing strong demand for dairy that saw Fonterra confirm its earnings at the end of the last financial year at the top end of the guidance range.

“The demand signals we saw at the end of FY22 have continued driving improved prices and higher margins across our portfolio of non-reference products, particularly in cheese, and our protein products, such as casein.

He said there was strong underlying demand and a recent lift in whole milk powder prices at the Global Dairy Trade auction was a positive signal, reversing the recent easing in prices driving the farmgate milk price.

Strong offshore prices for protein, as reflected in the recent increase in European Union and United States milk prices, mean the co-op’s protein portfolio had been performing well, he said.

“This sustained period of favourable pricing relativities between our protein and cheese portfolios and whole milk powder is the main driver for the increase in the FY23 earnings guidance range.

‘‘If these unprecedented conditions were to continue for a further extended period this could have an additional positive impact on forecast earnings.’’

Mr Hurrell said market conditions were expected to vary, but the co-op’s extensive portfolio of products allowed it to still capture value.

He said the co-op was comfortable with its contracted rate for the 2023 financial year, particularly for its protein products, at this stage of the season, but it was still ‘‘early days’’.

“Our strategy is based on growing demand, constrained supply and shifting our farmers’ milk into higher value products, all of which are currently being realised.”

Mr Hurrell said the reduction in milk collection due to poor weather had caused a slow start to the season, most recently seen with floods in the Far North and top part of the South Island.

Oceania Dairy wanted to install a packaging machine purchased from Spain during the pandemic lockdowns in 2021. But due to New Zealand’s travel restrictions, no one from abroad could assist with the installation.

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