Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The co-op's new earnings guidance is 50-70c/share, up from 45-60c. However, its forecast farmgate milk price range drops from $8.50-$10/kgMS to $8.50-$9.50/kgMS.
The new midpoint for the forecast milk price is $9/kgMS, a drop of 25c, but the co-op is holding its advance rate paid to farmers monthly for milk.
Fonterra chief executive Miles Hurell says it was a positive start to the year given the current global operating environment.
"We continue to feel the impact of geopolitical and macroeconomic events, with higher costs at every point in our supply chain.
"It's a similar story behind the farm gate with our farmer shareholders managing significantly higher input costs."
The co-op reports that globally, milk supply from key exporting regions is down over the last 12 months.
Production in Europe and Australia continues to be down, with US milk supply showing a slight improvement in recent months. In New Zealand, Fonterra's milk production is down 2.9% on the same point last season.
"Global market volatility has prompted some softening of demand for whole milk powder, particularly in Greater China, and this is reflected in our forecast farmgate milk price range," says Hurrell.
"We've seen increased participation from other regions, which has offset in part the drop in demand from Greater China. While it's still early in the financial year, we are happy with our sales contract rate."
Hurrell says the long-term outlook for dairy remains strong.
"There's no doubt that we're in a period of increased global uncertainty.
"Inflationary pressures are bing felt both on farm and across our business but looking further out, the fundamentals for dairy remain positive."
