Fonterra Flags El Niño Risk to Milk Supply Despite Doubled Annual Profit

New Zealand's Fonterra warned on Thursday that the El Niño weather pattern could negatively affect its milk volume growth late in the 2026/27 season, casting a shadow over an otherwise strong financial report that saw annual profits more than double.

El Niño Clouds Future Outlook

Fonterra, the world's largest dairy exporter, cited the heightened risk of extreme weather events as a key concern for its fiscal 2027 forecast. The World Meteorological Organization has indicated that El Niño, a periodic warming of Pacific sea surface temperatures, is set to intensify and could fuel conditions such as drought in New Zealand, impacting pasture growth and milk production.

Despite this risk, the company issued an underlying earnings per share forecast for fiscal 2027 of 65 to 85 New Zealand cents. The midpoint of this range is slightly above the 71 NZ cents per share recorded in fiscal 2026.

"A material reduction in milk production would affect the amount of product available to process and sell, so I think El Niño is a meaningful downside risk," said Jeremy Sullivan, an investment adviser at Craigs Investment Partners, who noted it was a reason for investors to "retain some caution around the FY27 outlook."

Strong 2026 Results and Shareholder Returns

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For the fiscal year 2026, Fonterra reported its profit after tax more than doubled to NZ$2.61 billion ($1.48 billion). The company attributed the strong performance to gains from the sale of its Mainland Group to Lactalis and robust demand for protein-rich products from its Ingredients business.

Reflecting the strong results, the dairy co-operative declared a final dividend of 33 New Zealand cents per share. This brought the total payout for the year to 73 NZ cents, a significant increase from the 57 NZ cents paid in the prior year.

Strategic Investments and Market Reaction

In response to shifting consumer preferences and rising global protein demand, Fonterra announced it will invest NZ$1 billion over the next three years. The capital will be used to expand its protein manufacturing network in the country's South Island, a move expected to create 50 to 60 permanent jobs.

Following the announcement, shares of Fonterra were up 0.4% to NZ$4.82 in early trading.