Global instability behind Fonterra’s ‘wide’ milk price forecast

Thursday, 29 May 2025

Fonterra says the farmer-owner dairy cooperative has ‘momentum’ behind it, but geopolitical instability remains a concern.

Fonterra has told dairy farmers to expect a 2025/26 farmgate milk price in the range of $8 to $11, a very wide range that reflected global geopolitical instability.

Rural finance expert Andrew Laming said: “That’s probably the widest they have ever come out with.”

Farmers have been enjoying near-record high milk prices from Fonterra, which has seen some retire debt, and very few utilising their bank overdrafts in the running of their farms, said Laming from NZAB.

Fonterra’s financial year runs from August 1 to July 31, and on Thursday Hurrell updated farmers on the cooperative’s third quarter results in an announcement to the NZX.

The Fonterra chief executive said the co-op’s forecast Farmgate Milk Price for the current season was “driven by strong demand for our milk price reference products and our range is unchanged at $9.70-$10.30 with a midpoint of $10 per kgMS.”

But he warned: “Looking at the season ahead, we expect this demand to continue for now, but we acknowledge the ongoing geopolitical uncertainty and the potential for a wider series of outcomes across the season.”

The official opening of the first of three electrode boilers at Fonterra's Edendale site.

“Therefore, our opening forecast Farmgate Milk Price for the 2025/26 season of $10 per kgMS sits within a wide forecast range of $8 to $11,” he said.

Hurrell told farmers Fonterra was pleased to have been able to tighten its year-end forecast earnings within the existing range thanks to the strength of its third quarter performance.

He said the cooperative’s “strong” profit after tax was $1.158 billion, up $119 million on the same time last year.

As a result, Fonterra had narrowed its year-end earnings range to 65 to 75 cents per share, at the upper end of the guidance provided in March.

President Donald Trump protects the US dairy industry with tariffs on New Zealand dairy, while New Zealand has no tariffs on US dairy imports. (AP Photo/Manuel Balce Ceneta)

“We’ve delivered strong shareholder returns through FY25, including a 22-cent interim dividend, and as we get closer to the end of the year, we are focused on maintaining this momentum,” Hurrell said.

Laming said the result was a reflection of a strong market boosting milk prices.

“The vast majority of the result is market,“ he said.

Fonterra chief executive Miles Hurrell says, ‘We acknowledge the ongoing geopolitical uncertainty and the potential for a wider series of outcomes across the season.’

However, Fonterra had refreshed its strategy, and was now focusing on “its knitting” of supplying the global food service and ingredients sectors, notably in Asia.

The cooperative is in the process of selling off its consumer brands business, which owns the venerable Anchor brand, though Fonterra intended to retain the ability to use the Anchor brand on some of its products for the food service industry.

Laming said the $10 farmgate milk price was not the best farmers had ever had, but it was high.

He said farmers had to back to 2014 when inflation-adjusted farmgate milk prices were higher.

Hurrell said: “Last year, we announced a step-change in our strategic direction, including a decision to divest our global consumer and associated businesses.

“We have been thoroughly testing the terms and value of both a trade sale and initial public offering (IPO) as divestment options.

“This work is on track as planned and we will seek farmer shareholder approval to divest through a vote in due course.

“Given the confidence we have in our strategy, we have strong conviction that a divestment is the right choice for the Co-op and its owners,” he said.