Wednesday, March 20, 2024

Fonterra explains fixed milk price

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Fonterra’s farmers will be offered a new fixed milk price option next season to be referenced back to the NZX Milk Futures Market, less a service fee of no more than 10c/kg milksolids.
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The monthly offering will be made in 10 months of the year, excluding January and February, and a farmer-supplier can commit up to 50% of estimated annual production.

Fonterra will make the fixed price scheme available for 5% of the total New Zealand milk supply, amounting to about 75 million kilograms to 80m kilos.

It will make at least 1m kg available at every event and if applications exceed the offer amount all farmers will be scaled back pro rata.

The offer price will be published late on Friday in the week of the second Global Dairy Trade auction each month, after the relevant milk futures market price adjustment.

Farmers will then have the weekend in which to decide to apply and for what quantity.

The NZX milk price futures market is at $6.02/kg for the contract period ending September 2019.

Therefore, a Fonterra fixed price to be offered on Friday, December 21, if the scheme was operating, would be $5.92 or slightly more.

Fonterra said it consulted farmers and incorporated their feedback to make the new pricing tool more transparent, flexible, and accessible.

Among the feedback was that most farmers will not bother with setting up a margin account to participate in NZX Dairy Derivatives, including milk price futures, but they will use a simpler alternative.

Fonterra said it is not setting up the fixed milk price in competition with NZX products and it has collaborated with NZX in designing the new optional tool.

Similar tools are available to farmers supplying milk processors in the United States, Europe and Ireland.

Options fixed from June to December will apply in that season and those fixed from March to May will apply for the following season.

The process will run through the Farm Source platform on each farmer’s Fonterra internet connection.

Fonterra will know the supply price of up to 5% of its milk regardless of the season’s outcome and will, therefore, have certainty on the margins it can achieve.

Farmers will also get more price certainty if they want and the scheme is a win-win, Farm Source and global operations chief operating officer Robert Spurway said.

Fonterra farmers have also received more advice of the co-operative’s plan for a recognition and rewards scheme to launch next season.

It wants to bring existing milk quality, animal welfare and environmental activities into a single, simpler framework as announced at the annual meeting in November.

The as-yet unnamed scheme will have more clarity and consistency about minimum standards and the consequences of not achieving them.

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