Fonterra's profit surge sparks optimism and higher milk price forecast

Fonterra's profit surge sparks optimism and higher milk price forecast

In a surprising twist that's got dairy enthusiasts and investors alike buzzing, Fonterra Co-operative Group Ltd has upped the ante for its fiscal year 2024 forecast, fueled by an impressive first-quarter performance that has CEO Miles Hurrell optimistic about the future.

The Farmgate Milk Price forecast for the 2023/24 season has soared 25 cents to a promising $7.50 per kgMS. The forecast range has shifted gears from $6.50 - $8.00 per kgMS to a more robust $7.00 - $8.00 per kgMS. Fonterra CEO Miles Hurrell attributes this surge to a rising demand for reference commodity products in key importing regions, especially with China showing a sweet tooth for Fonterra's offerings.

Hurrell acknowledges the volatility of the market.

 "It's still early in the year, with potential for further volatility in commodity prices, so we will continue to watch market dynamics closely and provide updates as needed," he said.

The Co-op isn't just milking it for the price; they've also reported a whopping 85% spike in profit after tax from this time last year, hitting $392 million or 24 cents per share. EBIT is flexing its muscles too, boasting a 63% increase to $575 million. Keep in mind, these numbers exclude the impact of selling DPA Brazil.

Miles Hurrell shares the secret behind this dairy delight. 

"Higher margins across the Co-op's Ingredients, Foodservice, and Consumer channels have driven the lift in earnings." 

The gross margin has snowballed from 15.5% last year to an impressive 21.4%. New Zealand Ingredients are holding their own, but Australia Ingredients is experiencing a dip in margins.

However, Hurrell's crystal ball suggests tightening margins in the second half of the year, thanks to higher input costs and a narrowing gap between reference and non-reference product prices.

Fonterra's not just about milking cows; they're flexing their innovation muscles too. Hurrell spills the beans on their in-market strategies, from launching adult milk powder in Japan targeting muscle loss to teaming up with a customer in Greater China for a probiotic-infused cake. If that doesn't scream cutting-edge dairy, we don't know what does.

But it's not all about profits and products. Fonterra is serious about sustainability, committing to a 30% reduction in on-farm emissions intensity by 2030. Mr. Hurrell emphasises the importance of collective effort.

"We have since been meeting with farmers to discuss how the Co-op can collectively achieve it."

With earnings soaring, milk prices on the rise, and innovative projects in the pipeline, Fonterra is painting a picture of positive momentum.