The Fonterra Shareholders Fund (ASX: FSF) share price is on the rise today, up 1% in morning trade.
This comes after the dairy co-operative lifted its Farmgate Milk Price for the second consecutive month. Fonterra last raised its forecast on 3 February.
Why did Fonterra raise its milk price forecast again?
Fonterra shares are gaining after the co-op raised its Farmgate Milk Price. The strong demand for New Zealand dairy is largely driven by increased demand from China.
In this morning’s ASX release, Fonterra increased its 2020-21 forecast Farmgate Milk Price from NZ$6.90–7.50 to NZ$7.30–7.90 per kilogram of milk solids (kgMS).
Farmers receive the middle of this range, which has increased by 5.5%, from NZ$7.20 to NZ$7.60 per kgMS.
The co-op said its 60-cent price forecast range reflected “continued uncertainties in the global dairy market”. Atop COVID-related uncertainties, milk supplies in the United States and European Union will begin to increase as their milking season starts up.
At the new forecast price, Fonterra said its milk price payments could contribute more than NZ$11.5 billion to the Kiwi economy this year.
Management commentary
Commenting on the increased in its price forecast, Fonterra CEO Miles Hurrell said:
We’ve seen Global Dairy Trade (GDT) prices continuing to increase since February when we last updated on our forecast Farmgate Milk Price and then this week there was the 15% increase in GDT prices.
It’s very much a China demand led story but there is also good demand for New Zealand dairy across South East Asia and the Middle East.
Hurrell said China’s rapid economic rebound from the pandemic has boosted dairy sales in the Middle Kingdom. Part of that increased demand comes from more focus on longer-life dairy products, like whole milk powder.
With a nod to the past year’s COVID related supply disruptions impacting most commodities around the world, he added, “We’re also seeing customers want to buy more of our products than usual to help mitigate the risk of global supply chain delays.
Fonterra will provide its full half-year financial results on 17 March.
Fonterra share price snapshot
The Fonterra share price has performed well over the past 12 months, up 29%. That compares to a 7% gain on the All Ordinaries Index (ASX: XAO).
Year-to-date the Fonterra share price is up 14%.
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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