Friday, March 29, 2024

Manage your own risk

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United States-based dairy analyst Brian Rice has some candid observations for Fonterra farmers – points that in the nicest possible way he has to be blunt about. They’re points he hopes will shed some light and offer some solutions to what has fast become a serious issue for Kiwi dairy farmers who’ve found themselves painfully exposed to global dairy commodity volatility – price risk management. “Number one on the list is that Fonterra does not manage your milk price risk for you – that’s on you and that’s the way it is world over. No co-ops manage milk price risk for their farmers. “What they do though is offer tools for them to use but it’s always got to be the member’s choice to use them or not,” he says. Rice understands New Zealand dairying having visited several times before, through his experience is working with NZ-based clients and brokering trades on NZX’s commodity dairy futures market. He’s the founder and principal of Rice Dairy, a Chicago-based company that provides dairy price risk management solutions to clients globally and he’s in NZ this month at the invitation of the Fonterra Shareholders’ Council. Rice is speaking at the council’s eight annual Grow Your Mind seminars across the country. This year the seminars aim to create a greater understanding of commodity volatility, highlighting the risks to farming businesses and importantly providing an insight into how those risks might be managed. It’s dangerous territory for farmers to believe Fonterra would be managing milk price risk but Rice says farmers might believe that because they’re used to the co-operative managing everything else outside the farmgate – from the pick-up and processing to marketing their product. In Fonterra’s case Rice agrees its value-add strategy is designed to somewhat shelter farmers from a level of volatility. But with milk price making up the vast proportion of farmers’ returns it’s vital farmers l
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