May 22, 2020


Fonterra cuts farmgate milk prices as COVID-19 strikes demand



Fonterra, the world's largest dairy exporter, cut the price it pays farmers for milk for the upcoming season with collapsing demand due to COVID-19 restraints, Reuters reported.


"COVID-19 has affected virtually every country, market and industry, and as a result, the global dairy market is volatile and the outlook is uncertain," Chief Executive Officer Miles Hurrell said in a statement.


But the third-quarter update on Thursday left investors, many of whom are farmers, pleased with shares up 1.7% to NZD3.65, outpacing the broader market .NZ50.


The Auckland-based company forecast a farmgate milk price between NZD5.4 to NZD6.9 per kilogramme of milk solids (kgMS) for the 2020-21 season, lower than in the current season, which it revised to NZD7.1-NZD7.3, from NZD7-NZD7.60.


"In the bigger scheme of things, we're looking at one of the biggest downturns in the global economy in the last century. If in that, farmers come out with a pay of US$6 a kilo, they will probably be feeling quite pleased with it," said Michael Gordon, a New Zealand-based senior economist at Westpac.


With much of the world still reeling from the impact of lockdowns, the food service sector in China, Fonterra's top market and where the outbreak was first detected, is rebounding quickly and has largely returned to normal levels in March and April, the company said.


Fonterra, which has been re-focusing on New Zealand after an ill-fated global expansion, reported a near 59% jump in nine-month underlying operating profit to NZD815 million (US$500.8 million) due to agreed upon contracts in the current season.


Hurrell told a conference call later that Fonterra does not plan to lay off staff for the moment.


It maintained its full-year underlying earnings forecast of between 15 and 25 New Zealand cents per share.