The strong numbers were built on steady milk supplies around the world and continued strong and balanced demand, especially in Latin America, China and the rest of Asia, chairman John Wilson said.
Being conservative with the opening forecast so it could lift during the 2017-18 season and maybe avoid downside risk in world prices was not an option open to Fonterra.
“It is our best estimate now from a weighted average model based on what we expect the year ahead to provide.”
That was now enshrined in the Milk Price Model and scrutinised by the Commerce Commission.
Consecutive seasons of $6-plus payouts would restore confidence and allow dairy farmers to return to profit but volatility was an ever-present fact in world markets, he said.
Wilson was commenting on the spread in recent seasons between his opening forecasts and the closing prices – the past three seasons contained both the biggest fall ($2.60 in 2014-15) and the biggest rise ($1.90, 2016-17 provisional).
Therefore, all dairy farmers should be cautious with their budgets at this early stage of the season.
A new forecast earnings range for the 2018 financial year would be announced in August, after Fonterra’s own budgeting was complete.
The market guidance for FY2017 remained at 45c to 55c/share with a target dividend of 40c, he said.
The combination of milk price and dividend would be $6.55/kg for a fully shared up farmer, being good news for farmers and their communities.
But the rise in butter prices of 100% this season and 50% in whole milk powder prices, while welcome, put pressure on Fonterra’s stream returns in ingredients.
“When we have different product streams changing by different percentages we have a lot of work left to do in the fourth quarter.
“That is necessary to ensure we stay comfortably within our earnings range and deliver our commitment to shareholding farmers and unit investors.”
Fonterra had taken 4% out of operating expenses in the nine months to the end of April and had reported reduced working capital days, 78 days this year compared with 80 last year and 89 the year before.
The extraordinary world prices for anhydrous milk fat and butter, now at record levels, reflected the demand of consumers for high-quality nutrition, he said.
Fonterra had very good milk fat processing options and was not necessarily tied to the low-priced skim milk powder co-product, with milk protein concentrate a better-priced alternative.
Wilson expected New Zealand milk production would take about 18 months to recover the 6% lost over the past two seasons (90m kg or 1b litres).
“Good weather, for the most part, over the past four months and the $6 milk price resulted in autumn milk production increases, quite significant compared with the previous autumn.
“Given a normal spring and a continuation of $6-plus milk prices I would expect NZ output to return to 1.6b kg next season or the one after.”
Much of that anticipated improved production would go into consumer and food service products, where sales in China had increased 40% and in Latin America were up 22%.
Fonterra’s revenue for the nine months was $13.9b, up 8% on the previous corresponding period.
DairyNZ chief executive Dr Tim Mackle said farmers had to take advantage of the milk price increases to pay down debt and do deferred maintenance.
Farmers also needed to work to make their businesses competitive and robust to ride out future price volatility.
