New Zealand dairy giant Fonterra has cut its forecast milk price for the third time this season. Announcing a trading update for the first quarter of its 2018/19 financial year, Fonterra said it had cut its forecast milk price for the 2018/19 milking season to a new range of $6 to $6.30/kg of milk solids (MS). In Irish terms, this equates to a final milk price of between 25.5c/litre and 26.8c/litre.
Fonterra’s previous forecast for milk price, which was announced in early October, was a range of between $6.25/kg MS to $6.50/kg MS (26.6c/litre to 27.6c/litre). The farmer owned dairy co-op blamed rising global milk supply for the latest cut in its farmgate milk price despite stating that demand from key dairy buying regions remained strong. Fonterra also said trade tensions in global markets was negatively impacting demand from countries that traditionally buy a lot of fat products.
“Demand from China and Asia remains strong. However, we are seeing geopolitical disruption impacting demand from countries that traditionally buy a lot of fat products from us,” said Fonterra chair John Monaghan.
Fonterra also announced its first quarter sales volumes had declined 6% compared to last year, while revenues are down 4% year on year to $3.8bn (€2.3bn).
“We are seeing challenges in our Australian Ingredients, Greater China Foodservice and Asia Foodservice businesses. I want to be clear with our farmers and unit holders about how we are tackling these issues,” said Fonterra chief executive Miles Hurrell.
“The lower gross margins and sales volumes in Greater China Foodservice and Asia Foodservice in Q1 are mainly due to the high sales volumes of butter and cream cheese at the end of Q4 2018, a slightly slower start to sales of UHT culinary cream and more sales of UHT milk which has a lower margin relative to our other products. We are expecting our sales to lift as we are seeing strong sales from our distributors off the back of demand in China for New Zealand made products, particularly our UHT culinary creams,” added Hurrell.