Fonterra revises its farm gate milk price forecasts, trimming the 2019/20 price, and boosting its 2020/21 price. But it gives no further guidance on the Company's earnings

Fonterra revises its farm gate milk price forecasts, trimming the 2019/20 price, and boosting its 2020/21 price. But it gives no further guidance on the Company's earnings

Fonterra is feeling better about the upcoming milk season and has effectively raised its forecast payout level for 2020/2021 and done that by narrowing its range estimates.

It is a gain of +25c/kgMS as their estimate narrows to between $5.90 and $6.90/kgMS.

But that is still not as strong as for the season just ending for which they have a new range of $7.10 to $7.20/kgMS. If it comes in at this level when the final position is announced in September, then the new season will start more than -10% lower than the current season. At least that is closer than the previous -14% indication.

They have trimmed the current season estimates by -5c.

No update was included about earnings and the Dividend.

You can review the full history of the payout levels for all dairy companies here.

Here is their Statement in full:

Fonterra revises its 2019/20 and 2020/21 forecast Farmgate Milk Price ranges

Fonterra Co-operative Group Limited today revised both its 2019/20 and 2020/21 forecast Farmgate Milk Price ranges.

  • The 2019/20 forecast Farmgate Milk Price range has narrowed from $7.10 - $7.30 per kgMS to $7.10 - $7.20 per kgMS. The mid-point, off which farmers are paid, has reduced to $7.15 per kgMS, down from $7.20 per kgMS
  • The 2020/21 forecast Farmgate Milk Price range has narrowed from $5.40 - $6.90 per kgMS to $5.90 - $6.90 per kgMS.  The mid-point, off which farmers are paid, has increased to $6.40 per kgMS, up from $6.15 per kgMS

Fonterra Chairman John Monaghan says the narrowing of the 2019/20 milk price toward the lower end of the previous range is the result of a strengthening New Zealand dollar versus the US dollar over the past two months.

The Co-operative will announce the final 2019/20 Farmgate Milk Price as part of its Annual Result in September.

Commenting on the 2020/21 forecast Farmgate Milk Price range, Mr Monaghan says the lift to the bottom end of the range was being predominantly driven by improved market conditions in China.

“After an initial shock due to COVID-19, dairy consumption in China is recovering with more people spending on food. We’re seeing customers ramp up promotional activity as they look to catch up on the sales losses incurred over lockdown.  

“Elsewhere, the EU and US Governments’ support measures for farmers are holding up milk production and dairy commodity prices despite the disruption they have experienced so far from COVID-19. While we expect these support measures to end at some point, it is likely they will continue through the peak of the New Zealand season.

“While there is still a high level of uncertainty in our global markets, we do see a lowering level of risk and this supports a decision to lift the bottom end of the price range. 

“It’s very early in the new season and we are keeping a close eye on consumer demand and production from the key milk producing regions. Milk supply from the EU, US and Latin America is increasing despite the impact of COVID-19, and there continues to be uncertainty around how the global recession and the potential for a second wave of COVID-19 globally could impact demand.”

The Co-operative is advising its farmers to continue budgeting with caution.

 

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4 Comments

Maybe the 20c dividend in graph for 19/20 season is a bit optimistic. But farmers are used to volatility and are very resilient.

fonterra should be a $12 to $20 billion dollar asset not the $6 billion that is its capitalisation. The difference could be attributed to its management risk. its present structure invites management to use debt to maintain payouts. didnt do west coast co-operative any good

It is interesting that Fonterra are saying the reasoning for the 5cent decrease for 2019/20 season is the US NZ exchange rate,when generally they are hedging out 15 months.Rule of thumb use to be 1 cent movement US NZ dollar = 10 cent payout movement.

Their hedging is more flexible than it used to be