This season's forecast Farmgate Milk Price has been impacted by reduced demand. However, according to CEO Miles Hurrell, Fonterra has remained on track for a strong full-year dividend.
The reduced short-term demand, particularly from China, has impacted Fonterra's 2022 to 2023 forecast Farmgate Milk Price.
"We're well through the season now, with almost all of our milk contracted, giving us more certainty on where we'll end the season," said Hurrell.
Hurrell continued that Global Dairy Trade prices have not recovered to the levels required to hold the previous midpoint for this season.
"For these reasons, we have narrowed the forecast range for the 2022 to 23 season from $8.00 to $8.60 per kgMS to $8.10 to $8.30 per kgMS and reduced the midpoint from $8.30 per kgMS to $8.20 per kgMS."
The opening forecast Farmgate Milk Price for next season of $7.25 to $8.75 per kgMS, with a midpoint of $8.00 per kgMS, reflected an expectation that China's demand for whole milk powder would lift over the medium term.
Fonterra expects demand to gradually strengthen over the 2024 financial year as China's economy recovers from COVID-19.
However, the timing and extent of this remained uncertain. Hurrell explained that China's in-market whole milk powder stocks are estimated to be above normal following increased domestic production, reflected in Fonterra's wide opening forecast range for the season.
"We recognise the pressure farmers are under and have designed a new Advance Rate guideline to get cash to farmers earlier in the season."
Fonterra's balance sheet had allowed the co-operative to make these changes with Fonterra also its new Advance Rate guideline going forward, beginning with the season about to commence.
The co-operative has reported a profit after tax of $1,326 million, equivalent to 81 cents per share, for the third quarter of the financial year 2023 (FY23).
This is up $854 million in the same period last year and includes the gain on sale from Soprole of $260 million.
Excluding the net gain from divestments, Fonterra's normalised profit after tax improved last year, up $606 million to $1,078 million, equivalent to 65 cents per share.
This was due to solid performance in its Ingredients channel, with continued higher margins in its cheese and protein portfolio, particularly casein and caseinate.
These favourable price relatives have continued longer than expected, with Fonterra also noticing improved performance in its food service and consumer channels, particularly in global markets.
"As a result, we have lifted our FY23 full-year forecast normalised earnings to 65-80 cents per share from 55-75 cents per share and remain on track for a solid full-year dividend.
Total Group normalised operating expenses are up partly due to the impact of impairments reported in Fonterra's FY23 Interim Results in March and ongoing inflationary pressures.
In the third quarter of FY23, Fonterra continued progressing on its long-term strategy, with the co-operative transitioning to its new Flexible Shareholding capital structure.
"We have also completed the divestment of Soprole and finalised our exit of China Farms following the sale of the last remaining farm. With the sale of Soprole now complete, we are bringing forward payment of our proposed capital return of around 50 cents per share and unit from October 2023 to August 2023."
Implementing the capital return, approximately $800 million, remains subject to a Scheme of Arrangement being voted on by shareholders and approved by the High Court, a typical process for this type of transaction.
Furthermore, the co-operative has continued to take steps towards its sustainability goals and is expecting to announce a scope three, or on-farm emissions target, in the middle of this calendar year.
Hurrell added that meetings are underway with farmers where Fonterra was sharing more information on what a target will look like and how it can be collectively achieved.
"It's also pleasing to see the Centre for Climate Action Joint Venture, of which Fonterra is a shareholder, is now operational."
The Joint Venture has made its first investment, contributing $1.8 million to Ruminant BioTech. This New Zealand-based start-up is developing a slow-release, biodegradable, methane-inhibiting bolus.
