Grupo Cooperativo Fonterra, the world’s largest dairy exporter, predicted a record milk price for the new season amid strong global demand.
Uckland-based Fonterra on Thursday raised the midpoint of its 2022-23 forecast by NZ 50 cents to NZ$9.50 (€5.63) per kilogram of dairy, which would be the price highest ever paid to its 10,000 farmer shareholders in New Zealand. It also issued earnings guidance of NZ 30-45 cents per share for FY23, up from 25-35 cents for the current year ending 31 July.
“The strong earnings guidance for the upcoming fiscal year reflects an expected recovery in some of the Co-op’s key markets, which have experienced margin pressures this fiscal year, along with continued favorable margins from ingredients,” said CEO Miles Hurrell. in a statement. “While the Co-op is in a position to forecast solid earnings and a healthy milk price for the year ahead, significant volatility remains.”
If achieved, the 2022-23 milk price will exceed the midpoint of the Cooperative’s 2021-22 season forecast of NZ$9.30. Fonterra normally confirms the season payment at the full-year results announcement in September.
Dairy prices have soared along with other commodities as the world faces supply constraints, while the weaker New Zealand dollar is also expected to boost the country’s export earnings. But higher prices also raise Fonterra’s input costs, putting pressure on its margins.
“Interest rates and inflation rose well above our assumptions, as did commodity prices in response to continued strong demand for dairy,” Hurrell said. “These increases in input costs are impacting the cost of our debt in the short term and also increasing agricultural costs.”
As higher milk prices boost working capital, Fonterra’s overall debt position has the potential to rise, he said.