In a statement, the co-operative said it had increased its forecast closing price for the 2016-17 season to A$5.20/kg milksolids (MS).
It had announced an opening price of A$4.75/kg MS in June, rising to A$5/kg MS by the end of the season. That compares with an A$5/kg MS payment for the 2015-16 season.
“Although the global market remains volatile, since the beginning of the season global milk supply has continued to decline significantly while demand has remained relatively stable,” Fonterra Australia managing director René Dedoncker said.
“We have seen positive movement in GlobalDairyTrade auction prices through August and September, with a 26% increase in the GDT price index since July, although the strong Australian dollar has offset some of the commodity market gains.”
Australia's dominant milk processor Murray Goulburn today lifted its payout to A$4.95/kg MS for the full season.
In June, it announced an opening forecast of a net A$4.31/kg MS, which it expected to rise to A$4.80/kg MS by the end of the season.
Fonterra is obliged to at least match Murray Goulburn’s price under its Bonlac supply agreement.
Dedoncker said Fonterra has made “strong progress” in turning around its Australian business, which has underperformed for several years in an environment of fierce competition for milk supply and overcapacity in dairy production.
It has started its joint venture with Chinese infant formula company Beingmate and begun producing dairy nutritionals for Bellamy’s Organics as well as expanding its cheese and butter capacity.
“Winning in cheese and nutritionals is core to our strategy to become Fonterra’s global ingredients hub for cheese, whey and nutritionals, complementing our consumer and foodservice businesses,” Dedoncker said.
“This is helping us move our farmers’ milk up the value chain into products generating higher returns, which ultimately flows back to the farmgate.”
Individual suppliers’ milk prices will vary across regions depending on the individual farm’s milk profile, regional production factors, milk quality and farm management systems, the company said.
Units of the Fonterra Shareholders’ Fund last traded at $5.90 and have slid 1.5% this year.
