Friday, March 29, 2024

Fonterra tips quieter second half

Avatar photo
European spring milk production is running ahead of last year and United States milk supply is stepping up, Fonterra chairman John Wilson says.
Reading Time: 2 minutes

Speaking last week after the presentation of the first-half results, Wilson said he did not expect sales performance to be as strong in the second half of the season.

Chinese customers tended to buy early and build inventory and international product prices had fallen in the two most-recent GlobalDairyTrade auctions, he said.

Global dairy commodity prices remained volatile and while Fonterra was standing by the current forecast farmgate milk price of $8.65 a kilogram of milksolids, it would be reviewed regularly and the market updated as required.

NZX Agrifax dairy analyst Susan Kilsby said commodity markets were starting to correct after prices had held at extremely high levels for almost 12 months.

“The current correction is largely driven by a temporary slowdown in Chinese purchases, but I expect the demand from this market and others to rebound within a few months,” she said.

“That lift in demand is likely to coincide with a tightening in supply, especially from New Zealand and Australia, that will again put upward pressure on dairy commodity prices, particularly whole milk powder.”

 Kilsby expected whole milk powder to sell for more than US$4000 a tonne throughout next season, for which she predicted a milk price of $7/kg MS.

The financial highlights of Fonterra entities included in the first-half results showed that earnings of the dominant NZMP ingredient sales and manufacturing division had been halved, along with the net profit after tax.

The impact of the lost opportunities in product mix was $116 million and the peak production costs were $76m, which Fonterra has moved to avoid in future by investing in more processing facilities.

Product sales volume in and ex-Australia fell significantly, only partly offset by modest consumer product sales growth in NZ.

On both sides of the Tasman Fonterra has been able to price its products only at what the market will bear, meaning much lower margins.

Fonterra admits to collecting 17% of Australia’s milk production, lower than the 20% claimed in the 2013 annual report and the 25% achieved historically after absorbing the Bonlac co-operative in the mid-2000s.

“It is a very competitive market, made even more so by the purchase of Warrnambool Cheese and Butter by Saputo, of Canada, which you can bet will be looking to grow,” Wilson said.

“We are in reasonable shape but we are not where we would like to be.”

The recent acquisition of Tamar Valley Dairy, in Tasmania, and the purchase of the maximum allowable 10% stake in Bega Cheese, of New South Wales, showed Fonterra was in Australia to stay, he said.

It was up to stage three in a four-stage reshaping of its Australian business. The fourth stage included making strategic partnerships and investments and growing its milk supply.

First-half earnings in the Asian division fell 68% because of high commodity input costs and sales disruption in Sri Lanka, offset by growth in China food service and onfarm development.

Latin America was the only division to show earnings growth, up 6%, because of a better contribution from Venezuela, the 10th-largest dairy importer in the world.

 

 

 

 

Total
0
Shares
People are also reading