World's major dairy company lifts forecast farmgate milk price range

WELLINGTON, Jan. 25 (Xinhua) -- Fonterra Co-operative Group Tuesday lifted its 2021/22 forecast farmgate milk price range to 8.90-9.50 New Zealand dollars (5.96-6.37 U.S. dollars) per kilogram of milksolid (kgMS), up from 8.40-9.00 New Zealand dollars per kgMS.

As New Zealand's largest dairy company, Fonterra produces approximately 30 percent of the world's dairy exports.

The price increase lifts the range midpoint, which farmers are paid off, by 50 cents to 9.20 New Zealand dollars per kgMS.

Fonterra CEO Miles Hurrell said the lift in the 2021/22 forecast farmgate milk price range is good news for both farmers and New Zealand communities. The new midpoint of 9.20 New Zealand dollars per kgMS would contribute 13.8 billion to the New Zealand economy this season.

"The increase is the result of consistent demand for dairy at a time of constrained global milk supply.

"In general, demand globally remains strong -- although we are seeing this vary across our geographic spread," he said, adding that overall, global milk supply growth is forecast to track below-average levels, with European milk production growth down last year and U.S. milk growth slowing due to high feed costs.

"It's a similar supply picture in New Zealand. Earlier this month we reduced our forecast milk collections for 2021/22 from 1,525 million kgMS to 1,500 million kgMS due to varied weather and challenging growing conditions.

"While the higher forecast Farmgate Milk Price does put pressure on our margins in our consumer and foodservice businesses, prices in our ingredients business are favorable for milk price and earnings at this stage. As a result, we remain comfortable with our current 2021/22 earnings guidance of 25-35 cents per share."

Hurrell said the co-op is keeping a close eye on a number of factors, including growing inflationary pressures impacting operational costs, the increased potential for volatility as a result of high dairy prices and economic disruptions from COVID-19, particularly as governments respond to the rapid spread of the Omicron variant.

Dairy is the largest export goods sector in New Zealand, accounting for one in every three dollars New Zealand earns from the goods export trade. China receives over 40 percent of New Zealand's dairy export.

Fonterra handles more than 90 percent of New Zealand's milk production. It represents more than 20 percent of the total New Zealand merchandise exports and 7 percent of the country's gross domestic product. (1 NZ dollar equals 0.67 U.S. dollar)