The ongoing strong demand for dairy, compounded by New Zealand’s shrinking milk pool, has prompted Fonterra Co-operative Group Limited to lift its forecast earnings guidance range to 45-60 cents per share, up from a previous estimate of 30-45 cents per share. The co-op has also revised its forecast milk collections for the current season to 1,495m kgMS, down from 1,510m kgMS.

The improved earnings guidance is mainly down to ‘favorable pricing relativities’ between Fonterra’s protein and cheese portfolios as well as whole milk powder, the co-op’s chief executive Miles Hurrell explained. “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.

Domestically, demand has continued to outstrip supply, with milk production in New Zealand down 6% in July and further impacted by weather conditions. This could see Fonterra’s Farmgate Milk Price range, which was revised down by 25 cents per kgMS in August, climb back up as the year progresses.

“We see strong underlying demand and the latest lift in whole milk powder prices on GDT is also a positive signal reversing the recent easing in the prices that drive our Farmgate Milk Price,”​ confirmed Hurrell. “Strong offshore prices for protein, as reflected in the recent increase in EU and US milk prices, mean our protein portfolio has been performing very well.”

The co-op’s chief sees further forecast revisions on the horizon if this perfect storm of low supply and strong demand at home and abroad continues. “Our strategy is based on growing demand, constrained supply and shifting our farmers’ milk into higher value products, all of which are currently being realized,”​ he said.

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

Fonterra is expected to announce its financial results for the year ending July 31, 2022 on September 22, 2022.

“We are committed to our 2030 targets and expect variable market conditions as we work towards them,”​ concluded Hurrell. “The benefit of being part of the co-op is having a diversified organization with an extensive portfolio of products which allow us to capture value in a broad range of market conditions, benefiting both farmer owners and unit holders.”