Latest / Best of Business / Andrew Murray: Fonterra Chief Financial Officer on the company lifting its forecast Farmgate Milk Price to $10

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

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  Speaker 1: You're listening to a podcast from News Talks. There'd be
• 0:12
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• 0:16
  Speaker 2: The dairy farmers are happy. The milk price has cracked
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  Speaker 2: double digits. Fonterra has raised its forecast farm gate milk
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  Speaker 2: price by fifty cents to a mid point of ten dollars.
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  Speaker 2: And that is the second rise in less than a month,
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  Speaker 2: and the company says it's due to strong demand from
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  Speaker 2: China and Southeast Asia. Andrew Murray is Fonterra's chief financial officer.
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  Speaker 2: He knows the money, he knows the figures, and he
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  Speaker 2: joins right now.
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  Speaker 3: Hello Andrew, good evening. How are you good?
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  Speaker 2: I would say the farmers are very good too, aren't they.
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  Speaker 3: Yeah? Yeah, that's certainly to feedback that we've had early
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  Speaker 3: on is yeah, it's very positive from the farmer bee.
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  Speaker 2: The company says it's due to strong demand from China
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  Speaker 2: and Southeast Asia. Now please come on. About eighteen months ago,
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  Speaker 2: far the GDT, the global dairy trade auction figures were
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  Speaker 2: going down and people were saying the Chinese economy appears
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  Speaker 2: to be tanking. This is looking bad, and there were
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  Speaker 2: lots of warnings for so can you please explain to
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  Speaker 2: me how come China, who have still not recovered, are
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  Speaker 2: actually driving this grice.
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  Speaker 3: Yeah, I think that the core behind it, actually, I
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  Speaker 3: would say is is the is the domestic production. And
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  Speaker 3: so last year there was quite a lot of domestic
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  Speaker 3: production in China that got turned into milk powder, and
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  Speaker 3: so there was a lot of inventory around that has
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  Speaker 3: been exhausted. They've rebalanced their heads domestically within China and
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  Speaker 3: so we're seeing that demand come back pretty strong. And
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  Speaker 3: then the other side, of course, is just that you know,
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  Speaker 3: US production is very flat, European production is down, so
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  Speaker 3: the demand from imports is pretty good from our perspective,
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  Speaker 3: and we've had a strong start to the season as
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  Speaker 3: well well.
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  Speaker 2: That this could us. What about Southeast Asia? What went
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  Speaker 2: so well there?
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  Speaker 3: Oh, look, it's actually pretty across the board, to be honest,
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  Speaker 3: there's nothing specific. It's in line with how it's been
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  Speaker 3: for at least the past twelve to eighteen months. So, yeah,
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  Speaker 3: it continues to be a strong market for US. You
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  Speaker 3: see that. You know, if you look a little bit
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  Speaker 3: into GDT, you'll see China is definitely stronger in the
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  Speaker 3: last in the last few auctions. So as we get
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  Speaker 3: as we really push up that you know in the
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  Speaker 3: milk price, FEA does tend to burnd off a little bit.
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  Speaker 3: They don't tend to play quite as much in terms
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  Speaker 3: of high prices as the China bios do and we're
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  Speaker 3: seeing that play out a little bit later.
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  Speaker 2: Okay, it's not all good news.
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  Speaker 3: Better.
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  Speaker 2: What's wrong with Better? There's some five point two percent?
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  Speaker 2: And the other one is Mozzarella, which has been going
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  Speaker 2: down at big time. It's on four point five to
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  Speaker 2: one auction and six point six last night. What's happening there?
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  Speaker 3: Yeah, Look, we've we've to be honest, we've been waiting
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  Speaker 3: for a little bit of that reversion to happen. So
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  Speaker 3: you know that that's the stream returns turning back a
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  Speaker 3: little bit normal. So certainly when you look at that
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  Speaker 3: again compared to what's happening in Europe and US, we've
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  Speaker 3: been expecting them to come off a little bit. So yeah,
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  Speaker 3: that that's something that we've been waiting on, probably for
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  Speaker 3: a few months.
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  Speaker 2: Done well, you're getting rid of you know, your value
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  Speaker 2: added brands, you know, the Mainland and the anchor and
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  Speaker 2: stuff like that. Would there ever be a day where
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  Speaker 2: you just said to mozzarella. I'm sorry, your day is done.
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  Speaker 3: Yeah, I don't know if we're in that space.
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  Speaker 2: Okay, that's well, that's good news. And here's the other
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  Speaker 2: thing that I find interesting. You are going to raise
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  Speaker 2: the fangate price, but your profit for the first quarter
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  Speaker 2: is actually down like thirty percent. So that's two hundred
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  Speaker 2: and sixty three down from three hundred and forty six million.
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  Speaker 2: So how come you're paying your you know, your shareholders
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  Speaker 2: more and yet your profit's gone down.
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  Speaker 3: Yeah. Look, I think the key in this one is,
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  Speaker 3: you know, our profit was still really strong for the quarter.
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  Speaker 3: If you compared to that quarter last year, we've probably
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  Speaker 3: had a milk price that was, you know, over two
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  Speaker 3: dollars less than it is now, and so obviously you
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  Speaker 3: know that we'll see that come through in the actual
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  Speaker 3: profit result. But still a very strong quarter for is
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  Speaker 3: and you see actually from a margin perspective, better than
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  Speaker 3: than two four last year. So we actually feel really
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  Speaker 3: good about the quarter numbers that they're in a good space.
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  Speaker 3: But you know that the key is that we've got
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  Speaker 3: a very strong balance sheet of what hard over the
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  Speaker 3: last few years to get ourselves into really good shape.
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  Speaker 3: You know, if I look at these changes. You know
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  Speaker 3: that the milk price going up et cetera. That's a
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  Speaker 3: good few hundred million that's going into the farmer's pockuts
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  Speaker 3: in January above what we expected. But the strength of
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  Speaker 3: the balance sheet is really alone is to do.
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  Speaker 2: That true, and you also have costs as you change
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  Speaker 2: your business model, so that might affect things in the
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  Speaker 2: short to medium.
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  Speaker 3: Oh yeah, look we've got that well planned. And you
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  Speaker 3: know we've rear from the gaidence for the year in
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  Speaker 3: that forty to sixty saints push year range. That's that's
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  Speaker 3: largely in language last year. So yeah, we're feeling a
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  Speaker 3: key in terms of hope'kling out for the rest of
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  Speaker 3: the year.
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  Speaker 2: All we have to say now is congratulations, are a
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  Speaker 2: good result and long may they continue.
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  Speaker 3: Yes, indeed, so thank you.
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  Speaker 2: That is Andrew Murray. He is Fonterra's chief financial officer.
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