Strong global milk prices led Fonterra to lift its forecast farmgate milk price to a fresh record, while still maintaining its earnings guidance range. 

The co-operative now expects to pay farmers $9.30-$9.90 per kilogram of milk solids (kgMS) in the current season, up from a prior forecast of $8.90-$9.50 per kgMS.

This increases the midpoint of the range, which farmers are paid from, by 40 cents to NZ$9.60 per kgMS.

The midpoint is a cash injection of $14 billion for NZ’s rural economy, Fonterra said. 

The lift in the forecast reflects the increase in global dairy prices since the co-op’s last milk price update in January, and good levels of ongoing global demand for dairy, said chief executive Miles Hurrell. 

“Since we last revised our forecast, average Whole Milk Powder prices on GDT have increased 10.3%, while Skim Milk Powder has increased 8.4%. Both products are key drivers of our milk price.”

Hurrell noted that global demand for dairy remains firm while supply is below-average levels. 

“Milk production in the EU and US continues to be impacted by the high cost of feed and this is not expected to change in the coming months,” he said.

Challenging weather conditions also lead the co-operative to lower the 2021/22 New Zealand milk collections forecast to 1,480 million kgMS, down 3.8% compared to last season.

“This reduction in supply reinforces our strategic focus on ensuring our milk is going into the highest value products,” he said. 

Hurrell said the lift will be welcome news for farmers who are facing rising costs on farm, including from inflation and rising interest rates.

“Analysis by Statistics New Zealand shows a number of key farm inputs have experienced significant inflation pressure over the past two years, for example electricity costs are up 21%, while stock grazing costs are up 36.9%.”

While the higher price puts pressure on margins in its consumer and foodservice business, prices in its ingredients business remain favourable for milk price and earnings at this stage.

“As a result, our current 2021/22 earnings guidance of 25-35 cents per share remains unchanged.”