Fonterra has announced an opening farmgate milk price for the new 2024-2025 season of $7.25-$8.75kg milksolids with a midpoint of $8 as supply and demand dynamics remain finely balanced and China import demand stagnates.  

In a Q3 business update, the dairy cooperative said its current season farmgate milk price midpoint was unchanged at $7.80, with a narrowed range of $7.70-$7.90/kg.  

“Looking to the 2024-2025 season, milk supply and demand dynamics remain finely balanced and China import volumes have not yet recovered to historic levels,” chief executive Miles Hurrell said.  

The new dairy season starts on June 1.  

New Zealand’s biggest business also announced profit after tax from continuing operations of $1.013 billion, up $20 million or equivalent to 61c per share.  

Strong earnings across all the company’s ingredients, food services and consumer channels drove the result.  

The company announced a lift in its forecast FY24 continuing operations’ earnings range from 50-65c per share to 60-70c per share.  

Continuing operations earnings excluded earnings from discontinued operations.  

In FY24 discontinued operations were DPA Brazil and in FY23 discontinued operations were DPA Brazil, Soprole and China Farms. 

Hurrell said the foodservice and consumer channels in particular had a strong third quarter with a lift in earnings compared to the same time last year. 

Earlier this month, the farmer-owned co-operative announced it was considering selling all or parts of its consumer business in order to prioritise the foodservice and ingredients divisions. 

Hurrell said after that announcement, Fonterra had a “high volume of interest” from parties looking to be involved in the potential divestment of the consumer and associated businesses. 

“It’s still early days in this process, and we commit to providing farmer shareholders, unit holders, our people and the market updated on new developments as they occur,” he said. 

“We are also progressing work on our updated strategy and expect to share further detail over the coming months.” 

Also in the update, the company announced continuing operations earnings per share of 61 cents and reported earnings per share of 58c. 

Continuing operations profit after tax was $1.4b up $20m, or 2 per cent while reported profit after tax at $973m was down 27 per cent with the prior period, including performance of divested South American subsidiary Soprole and net gain on divestments. 

Continuing operations earnings before interest and tax were $1.44b, down 6 per cent, while return on capital at 11.9 per cent was up from 11.7 per cent year on year. 

Fonterra’s earnings from continuing operations year to date equated to 61c per share, up 1c on the prior year. 

“Fonterra’s sales volumes were up slightly on last year by 38kMT, or 1 per cent, due to higher sales volumes in our Foodservice and Consumer channels,” Hurrell said. 

Fonterra chief executive Miles Hurrell. 

“We also saw price relativities ease over the quarter, and we anticipate them to narrow further in Q4 as they return to more historic levels. 

“Gross margins remain strong across all three channels as our in-market teams continue to drive pricing and volume. Foodservice and Consumer volumes are up 4 per cent and 7 per cent respectively year-on-year, with margins consistent with Q2. 

“Our Ebit of $1,440 million reflected improved performance in Foodservice and Consumer, with Ingredients down year-on-year following record highs in FY23,” Hurrell said. 

Fonterra’s increased earnings range assumed softer earnings in Q4 due to the seasonality of milk collections, higher cost of inputs in the foodservice and consumer channels, and the impact of the investments in modernising IT systems, he said. 

“Across Fonterra, operating expenses are up due to inflation, upfront costs of driving efficiency improvements and increased IT spend. Historically, some of this IT spend would have been treated as capex and capitalised on the balance sheet. 

“We are heading into year end with a strong balance sheet, with Fonterra’s underlying performance and lower debt position helping to further reduce our financing costs. 

“For the 12 months rolling return on capital we are sitting at 11.9 per cent in line with our forecast. This is expected to be in our 10-11 per cent target range for end of year,” Hurrell said.