Fonterra has announced an opening 2023/24 season farmgate milk price forecast of $7.25 to $8.75 per kg of milk solids, with a midpoint of $8.00 per kg.

The co-op also reported a lift in its third quarter net profit to $1.326 billion, equivalent to 81 cents per share, for the third quarter of 2023.

This was up $854 million on the same period last year, and included the gain on sale from Chile’s Soprole of $260m.

Excluding the net gain from divestments, the normalised profit after tax improved on last year, up $606m to $1.078b, equivalent to 65 cents per share.

The forecast for the current season, which ends on May 31, has been cut due to reduced short term demand, particularly from China.

The co-op increased its full year earnings guidance, and has brought forward the payment date of its proposed capital return.

Fonterra has narrowed the forecast range for the current 2022/23 season from $8.00 - $8.60 per kgMS to $8.10 - $8.30 per kg and reduced the midpoint from $8.30 per kg to $8.20 per kg.

Chief executive Miles Hurrell said that while the forecast farmgate milk price for this season had been impacted by reduced demand, the co-op remained on track for a strong full-year dividend.

“The reduced short-term demand, particularly from China, has had an impact on our 2022/23 forecast farmgate milk price,” he said.

Hurrell said that the co-op was well through the season now, with almost all of its milk contracted.

“Global Dairy Trade prices have not recovered to the levels required to hold the previous midpoint for this season,” he said.

The opening forecast for 2023/24 reflected an expectation that China’s demand for whole milk powder would lift over the medium-term.

“We expect demand to gradually strengthen over the course of 2024 as China’s economy continues to recover from Covid-19,” Hurrell said.

“However, the timing and extent of this remains uncertain, with China’s in-market whole milk powder stocks estimated to be above normal levels following increased domestic production. This is reflected in our wide opening forecast range for the season,” Hurrell said.

Fonterra, recognising the pressure farmers are under, said it had designed a new advance rate guideline to get cash to farmers earlier in the season.

“Our strong balance sheet allows us to make these changes and we will be using this new advance tate guideline going forward, starting with the season about to commence,” Hurrell said.

He said Fonterra’s strong financial performance over the quarter was due to a strong performance in its ingredients channel, with continued higher margins in the cheese and protein portfolio, particularly casein and caseinate.

“These favourable price relatives have continued longer than expected, and we’re also seeing improved performance coming through in our foodservice and consumer channels, in particular in global markets,” he said.

“As a result, we have lifted our full yeart full year forecast normalised earnings to 65-80 cents per share from 55-75 cents per share and remain on track for a strong full year dividend,” he said.

“With the sale of Soprole now complete, we are bringing forward payment of our proposed capital return of around 50 cents per share and unit from October 2023 to August 2023,” he added.

Implementation of the capital return, which is approximately $800m, remained subject to a scheme of arrangement being voted on by shareholders, and approval by the High Court.