Cow bells will be ringing as dairy giant Fonterra gets on a financial roll

Dairy giant Fonterra is on a financial roll and it wants  to send  a  new wave of confidence through the country’s cowsheds.  It  upgraded its earnings guidance to 50 – 70c per share from 45 – 60c per share.  Contrast that  with the 20c it paid for the 2021-22 season.

At the same time, it  lowered and narrowed its forecast Farmgate Milk Price range of $8.50 – $10.00kg/MS to $8.50 – $9.50kg/MS, with a midpoint of $9.00 while holding its advance rate. It also reported a strong start to the 2023 financial year.

Fonterra CEO Miles Hurrell said it was a positive start to the year given the current global operating environment.

“We continue to feel the impact of geopolitical and macroeconomic events, with higher costs at every point in our supply chain. It’s a similar story behind the farm gate with our farmer shareholders managing significantly higher input costs”.

Fresh developments on climate change measures in the dairy industry: a wake-up call to farmers

The NZ dairy industry faces climate change hurdles beyond the levies the Ardern government has indicated it will impose on farms. Fonterra CEO Miles Hurrell drew attention to them when he told an interviewer at the Fieldays at Mystery Creek the giant dairy co-op and its farmers risk not being able to access debt funding in the future if they don’t meet banks’ sustainability expectations.

Banks are wanting to set Scope 3 carbon emissions targets, which includes emissions they are indirectly responsible for, and not meeting their expectations could result in less favourable funding rates or ultimately not being able to access funding in the future.

“That’s something that we need to be aware of but it’s not a conversation we’re having with our banks at this moment,” Hurrell said.

Over the past four years, Solagri has worked with farmers and engineers to build and refine a solar solution optimised for dairy farm operations. Solagri Energy’s capital-free solution means farmers can have an innovative state-of-the-art grid-connected solar generation system without the significant upfront cost.

“The technology is advanced, but the model is pretty simple,” says managing director Peter Saunders. “Farmers provide us with a small parcel of land, about a quarter of a hectare, where we build the solar array. “In return, they receive solar electricity generated on their own farm at a fixed price for 20 years. There is zero capital cost to the farmer, any unused power will supply the local grid.”

Solagri are currently working on the development of their battery energy management system. Having recently received Callaghan Innovation funding, they expect to have batteries as a standard part of the offering within the next 12-18 months.

“The inclusion of batteries will improve the efficiency of solar and enable us to store electricity from the grid for use in the shed during the morning milking. They will also make the farm far more energy resilient with the shed being able to continue milking when the power goes down,” says Saunders.

Point of  Order sees a link between the message Hurrell was delivering an the progress Solagri is making. At its annual meeting, Fonterra told farmer shareholders that the dairy co-operative was likely to set a target for its own Scope 3 carbon emissions, which would include its farmers as 91% of its emissions were behind the farm gate. Fonterra also warned farmers that it risks losing customers and facing trade barriers in its overseas markets if it doesn’t meet sustainability expectations. Hurrell said the co-operative’s customers were setting Scope 3 targets, and putting pressure on Fonterra to come up with its own targets.

“We’ve done a lot of work on Scope 1 and 2 at our own supply chain and now the focus needs to shift to say, what do we need to do in Scope 3,” he said.

“The risks from a customers and consumer perspective is that we may be in a situation where those customers don’t work with us, they purchase from other countries, and there are other countries that do have Scope 3 emissions targets in place in various sectors.

“Of course, there may be markets that still are open to us. But our job is to extract the best value we can and we believe that those customers and consumers that are prepared to pay will be seeking Scope 3 versus those markets that may not pay the same level of return.”

While pressure was being put on Fonterra, Hurrell said the company believed that becoming more sustainable was “the right thing to do.”

“Our job is to paint a picture of what the future looks like, from a market perspective,” he said. “We feel obliged to let them know that’s what our customers and consumers are seeking.”

World dairy prices tumble further as farmers face the prospect of being charged for livestock emissions

As debate rages in New Zealand’s farming industries over the Ardern  government’s  plan  for  charges  on  agricultural emissions, prices at Fonterra’s  Global  Dairy  Trade fortnightly auction  have fallen to their lowest level in nearly two years.

The average price at the sale fell 3.9%  to US$3537 (NZD$6054) a tonne, after falling 4.6% in the previous auction.

Prices have generally been falling since hitting a record high in March, and are now at their lowest level since January last year.

Wholemilk powder fell 3.4%  to US$3279 a  tonne and  skimmilk  powder 8.5% to US$2972  a  tonne, while  butter  was  marginally  up at US$4868  a  tonne  (though  a  long way  down  from  its peak  in  March  above  US$7000 a  tonne)  and cheddar 0.9% to US$4802 a tonne.

Fonterra’s competitors challenge its capital restructuring plan – but the co-op has the backing of our Agriculture Minister

New Zealand’s   big  dairy  company, Fonterra,  has  come  under  pressure   from  two  directions  this  week.  First,  its  fortnightly GDT auction registered  another   fall  in  prices. Second,  it  faced  fire   from   four  of  its  competitors which  lobbied  the  government against  its  capital  restructuring  plan.

On  the  first issue, the latest  sale  has  taken  the GDT index  to  the  lowest level  since  January  last  year, although  what  may  soften that particular  blow  is  the  devaluation  of  the  local  currency. The  NZ dollar is  now  trading well  down against  the  greenback at US56c ,  from where  it  was  then,  around US70c.

The average price at the  auction fell 4.6% to US$3723 a tonne, after falling 3.5% in the previous auction.

Oops – the world price dips for dairy products but low NZ dollar is a compensating factor

Dairy prices have fallen  at the  Fonterra  GDT  auction this  week.  The average price at the fortnightly sale fell 3.5% to US$3911 ($NZ6830) a tonne, after rising 2% in the previous auction.

Prices have generally been falling since hitting a record high in March. But   with the  NZ dollar  now  down around the US57c mark, the  impact   of  the  latest fall  on the  farmgate  payout  will not  be as  great as it  at  first appears.

The price of wholemilk powder, which strongly influences the payout for  farmers, fell 4% to US$3573 a tonne.

Prices for other products fell  also: butter was down 7% to $4983,skim milk powder down 1.6% to $3497,  and cheddar down 3.8% to $4,966.

NZX dairy analyst Alex  Winning  said a  significant lack of demand arriving at this auction has resulted in a red screen of price declines.

“Demand to supply ratios at this auction were almost half of what arrived at the previous auction.”

The amount of product on offer was up on previous auctions, which Winning said was a factor in the weaker prices, as was the weak demand coming from Chinese buyers.

“The lack of Chinese demand remains the big unknown for the wider dairy market, everyone on the sell side is still waiting with bated breath for the Chinese buyers to rally the market higher.

“Conversely, everyone else on the buy side of the market is most likely relieved not to be competing with strong Chinese demand while prices for everything else are climbing”.

Winning said the weakness in prices perhaps mirrored the wider macro-economic environment.

“It is tough on the ground for consumers and the tail wind of steady demand from consumers is likely to be fading”.

Dairy giant Fonterra  has cut the 2022/23 milk payout forecast by 25ckg/MS to a mid-point of 9.25kg/MS.

The new range is $8.50-$10.00kg/MS. However the current advance payment rate of $5.70kg/MS remains unchanged.

Fonterra also reported a 5% drop in local milk collection in August.

Fonterra reports a $585m net profit- and $13.7bn in payments to farmers from the milk price will flow into the economy

New Zealand’s  big dairy  co-op Fonterra, reporting  its  annual  result  with  revenue  rising 11%  to  $23.4bn  says  it  has  an “exciting  future”.

Net profit  of  $585m took a $80m hit from its Sri Lankan business following economic disruption in the nation.

But chief executive Miles  Hurrell says the co-op is making tangible progress on  its strategy  to focus on New Zealand milk, be a leader in sustainability and a leader in dairy innovation and science.

Hurrell reckons  the result  shows  decisions relating to product mix, market diversification, quality products and resilient supply chain are enabling the co-op to deliver both a strong milk price and robust financial performance in a tough global operating environment.

He  says the co-op is paying a total dividend of 20c per share for its farmer owners and unit holders. And this year’s higher Farmgate Milk Price is the strongest it has ever been, “which is great news for our farmers”.

The New Zealand economy benefits from this, with $13.7bn flowing through from milk price payments alone this year.

Greenies challenge NZ food producers with push towards lab-produced tucker but Fonterra strikes back with Nutiani

New Zealand’s  food  exporters, on whom  this  country  depends  for  the  bulk of  its  export earnings, may  have  to  contend  with  fresh  opposition  from a  new  quarter. This  is  the  school  of  “greenies” who  preach  the  need  for  a revolution  in  creating  food through  precision  fermentation: growing  food   in  labs  from  microbes  and  water.

Leading  this  school  in the  United Kingdom is a  formidable  authority,  George  Monbiot,  who argues  that  before  long

 “… most  of  our  food will come neither from animals nor plants but  from unicellular  life”.   

Monbiot  and  others  like   him  argue  it  is  “indisputable”   that  the  farming revolution of  the  the  1950’s ,  with  its  widespread use  of  herbicides, pesticides  and  fungicides has  waged  war  on  nature.

He  has a  column  in the  Guardian and recently  wrote that  organic, pasture -fed  beef and  lamb  are  the  “world’s  most  damaging  farm  products”.

How Miles brings smiles to the nation’s cowsheds – this time by upgrading earnings guidance

The giant  dairy co-op Fonterra  has  sent  a  shiver  of  excitement  through the  country’s   cowsheds     by   upgrading  its earnings guidance to between 45 and 60c per share, up from 30 to 45c per share for the 2022-23  season.

At  a  time  when  other  sectors  of  the  economy   are  under  pressure, and the  dairy industry is  coping with  difficult  climatic  conditions,  Fonterra in effect is signalling  that NZ’s export  mainstay can  do  even  better  than it  did in the  previous outstanding season  in sustaining its  export  earnings.

Some  might   say  Fonterra is  at  last  on  the  brink of  fulfilling  the  promise  its  founders held  for it 20-odd  years  ago.

Fonterra chief executive Miles Hurrell foresees  the  possibility  that if  current conditions  persist, the revised guidance  could be raised   again.

A  further outstanding performance  by  Fonterra  and  its  farmer-suppliers might even silence  the  climate-change warriors  who call for the  dairy  herd  to be  culled to  reduce  methane emissions.

A2 share price rallies sharply after the dairy processor reports big jump in net profit

A mixed  bag  of  news  came  down the  line  for  New Zealand’s  dairy  industry  over the  past  week.  On  one  side,  Fonterra trimmed   its  forecast  payout  for  the  season, while  on  another a2  Milk   surprised   its  critics  by  reporting  a  42% jump  in  net  profit  to $114m.

Any   company  listed  on  the NZX  and  sitting  on a  cash  mountain  of  $800m  must  be  doing  something  right.    Yet  some of  the  headlines  on   its  result  focussed  on  what  might  go  wrong   for   the  company  that specialises  in marketing  a2 milk  and  infant  formula.

For  example  Business  Desk’s  Jenny Ruth  says the    biggest source of uncertainty for a2 Milk right now is China’s State Administration for Market Regulation (SAMR) deadline of February 21, 2023, for companies selling infant formula in China to get a new form of approval.  It’s called the GB standard, which is a Chinese national standard. Foreign companies won’t be able to manufacture formula for the Chinese market beyond that date unless they meet the new standard and have that all-important tick from SAMR.

But the  investment  community  was  cheered  by the  result in  what  is  currently  a rather downmarket climate. A2 Milk’s  share price rallied sharply after the company reported the  leap in profit which was driven by strong growth in its infant formula business in China.

MPI allays foot-and-mouth rumours while prices fall again at dairy auction

It’s a tense time in New Zealand’s farming industries. Already the Ministry for Primary Industries has  had to shoot  down  an  overseas  news  report that  China  had  shut  its  borders  to  NZ  and  Australian  products  due  to  concerns   about  foot-and-mouth.

NZ  exports  to  China  are  continuing  as   normal, a Ministry  for Primary Industries spokesman said.

And Fonterra’s  fortnightly GDT auction  went  ahead  as scheduled  this  week,  with  keen  bidding   by   Chinese buyers.

Prices fell  for the  fifth  consecutive  time but  buying  caution  was  attributed to  the  fact consumers  are  worrying about soaring food prices. Other  observers  noted  the  impact on demand of disruption from Covid-19 lockdowns in China, an economic crisis in Sri Lanka and the Russia-Ukraine conflict.