The dairy co-op also announced it had recorded a “solid start” to the financial year, with its first-quarter earnings up $72 million on the previous year.
The company narrowed and lifted the bottom end of its forecast farmgate milk price range from $6.30 – $7.30 per kilogram of milk solids (kgMS) to $6.70 – $7.30 per kgMS.
The revised forecast meant the midpoint range – which farmers are paid – increased to $7.00 per kgMS.
Chief executive Miles Hurrell said the higher forecast came on the back of strong demand from China.
“China is continuing to recover well from COVID-19 and this is reflected in recent Global Dairy Trade (GDT) auctions with strong demand from Chinese buyers, especially for whole milk powder, which is a key driver of the milk price,” Hurrell said.
“The impact of COVID-19 continues to play out globally, and we continue to have a watchful eye on the increasing Northern Hemisphere milk production and New Zealand dollar.
“However, we have contracted a good proportion of our sales book for this time of the season, which has given us the confidence to narrow and lift the bottom end of the forecast farmgate milk price range.”
Hurrell said based on the forecast, the co-op would contribute around $10.5 billion to the New Zealand economy this year.
The revised forecast came as Fonterra gave a first-quarter business update on Friday.
In a “solid start” to the financial year, the company had recorded normalised earnings before interest and tax (EBIT) of $250 million, up $72 million from the previous year, Hurrell said.
He said he was pleased with the co-op’s performance.
“Despite ongoing market disruptions from COVID-19, we are continuing to build on the momentum achieved in the last financial year and this can be seen in the progress we are making against our 2021 priorities.”
Hurrell added that the company was on track to deliver on its earning guidance but cautioned there were still a number of risks to “keep a close eye on”.
“For this reason we have made the decision to maintain our current forecast earnings range,” he said.
“COVID-19 related challenges remain, including how the global recession and new waves of the virus will impact customer demand, and there is some congestion in global supply chains that we are actively managing. There is also continued uncertainty around what could happen to the price difference between the products that determine our milk price and the rest of our product range in the second half of the year.
“We will continue to monitor the situation and, as the year progresses and we have more certainty, we would expect the forecast earnings range to narrow.”
