Andrew Murray: Fonterra Chief Financial Officer on the company lifting its forecast Farmgate Milk Price to $10

Dairy giant Fonterra has raised its forecast milk price payout to a midpoint of $10 - the second rise in less than a month.

The company says this new forecast reflects strong international demand, particularly from China and Southeast Asia.

Fonterra's CFO Andrew Murray says this news has been received positively by farmers.

"US production is very flat and European production is down - so the demand from imports is pretty good from our perspective and we've had a strong start to the season as well."

LISTEN ABOVE

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
The dairy farmers are happy. The milk price has cracked
double digits. Fonterra has raised its forecast farm gate milk
price by fifty cents to a mid point of ten dollars.
And that is the second rise in less than a month,
and the company says it's due to strong demand from
China and Southeast Asia. Andrew Murray is Fonterra's chief financial officer.

(00:22):
He knows the money, he knows the figures, and he
joins right now.

Speaker 2 (00:25):
Hello Andrew, good evening, How are you good?

Speaker 1 (00:28):
I would say the farmers are very good too, aren't they.

Speaker 2 (00:32):
Yeah, Yeah, that's certainly to feedback that we've had early
on is yeah, it's very positive from the farmer beef.

Speaker 1 (00:37):
The company says it's due to strong demand from China
and Southeast Asia. Now, please come on. About eighteen months ago,
far the GDT, the global dairy trade auction figures were
going down and people were saying the Chinese economy appears
to be tanking. This is looking bad and there were
lots of warnings for farmers. So can you please explain
to me how come China, who have still not recovered,
are actually driving this growth.

Speaker 2 (01:00):
Yeah, I think that the core behind it, actually, I
would say is is the is the domestic production. And
so last year there was quite a lot of domestic
production in China that got turned into milk powder, and
so there was a lot of inventory around that has
been exhausted. They've rebalanced their heads domestically within China and
so we're seeing that demand come back pretty stronger. And

(01:20):
then the other side, of course, is just that you know,
US production is very flat, European production is down, so
the demand from imports is pretty good from our perspective,
and we've had a strong start to the season as well. Well.

Speaker 1 (01:32):
There, this is good news. What about Southeast Asia? What
would win?

Speaker 2 (01:35):
So well there, Oh, look, it's actually pretty across the board,
to be honest, there's nothing specific. It's it's in line
with how it's been for yeah, at least the past
twelve to eighteen months. So it continues to be a
strong market for us. You'll see that, you know, if
you if you look a little bit into GDT, you'll
see China is definitely stronger in the last in the
last few options. So as we get as we really

(01:56):
push up that, you know, the milk price fee does
tend to bond off a little bit. They don't tend
to be quite as much in terms of high prices
as the chain of bios do. And we're seeing that
play out a little bit there.

Speaker 1 (02:09):
Okay, it's not all good news, butter what's wrong with better?
There's some five point two percent? And the other one
is Mozzarella, which has been going down a big time.
It's on four point five to one auction and six
point six last night. What's happening there?

Speaker 2 (02:22):
Yeah, Look, we've we've to be honest, we've been waiting
for a little bit of that reversion to happen. So
you know that that's the stream returns turning back a
little bit normal. So certainly when you look at that
again compared to what's happening in Europe and US, we've
been expecting them to come off a little bit. So yeah,
that's something that we've been waiting on, probably for a
few months. Done.

Speaker 1 (02:41):
Well, you're getting rid of you know, your value added brands,
you know, the mainland and the anchor and stuff like that.
Would there ever be a day where you just said
to Mozzarella, I'm sorry, your day is done.

Speaker 2 (02:51):
Oh yeah, I don't know if we're in that space.

Speaker 1 (02:54):
Okay, that's well, that's good news. And here's the other
thing that I find interesting. You going to raise the
fangate price, but your profit for the first quarter is
actually down like thirty percent. So that's two hundred and
sixty three down from three hundred and forty six million.
So how come you're paying your you know, your shareholders
more and yet your profit's gone down.

Speaker 2 (03:14):
Yeah. Look, I think the key in this one is,
you know, our profit was still really strong for the quarter.
If you're compared to that quarter last year, we've probably
had the milk price that was, you know, over two
dollars less than it is now, and so obviously you
know that we'll see that come through in the actual
profit result. But still a very strong quarter for us.
And you see, actually from a margin perspective, better than

(03:34):
than two four last year. So we actually feel really
good about the quarter numbers that they're in a good space.
But you know that the key is that we've got
a very strong balance sheep with what hard over the
last few years to get ourselves into really good shape.
You know, if I look at these changes, you know,
the milk price going up, et cetera. I mean, that's
that's you know, a good few hundred million. That's that's
going into the farmer's pockets in January above what we expected.

(03:57):
But the strength of the balance sheet is really is
to do that true.

Speaker 1 (04:01):
And you also have costs as you change your business model,
so that might affect things in the short to medium.

Speaker 2 (04:07):
Oh yeah, look, we've got that well planned. And you
know we've reformed the guidance for the year in that
forty to sixty Saints push year arrange. That's that's largely
in language last year. So yeah, we're feeling all key
in terms of hope. We're cleaning out for the rest
of the year.

Speaker 1 (04:21):
All we have to say now is congratulations, are a
good result and long may they continue.

Speaker 2 (04:26):
Yes, indeed, so thank you.

Speaker 1 (04:28):
That is Andrew Murray. He is Fonterra's chief financial officer.

Speaker 2 (04:32):
For more from Hither Duplessy Alan Drive, listen live to
news talks it'd be from four pm weekdays, or follow
the podcast on iHeartRadio.