Farmers have welcomed the Provincial Growth Fund’s decision to put $7.11 million into creating a sustainable water supply for Wairarapa.
Federated Farmers Dairy chairman Andrew Hoggard says the contracts won't be for everyone, but this will give NZ dairy farmers a risk management tool that makes their businesses less susceptible to large price fluctuations.
"It will put us on a more level playing field with most of our international competitors who already have this sort of tool available to them," says Hoggard.
"Price volatility within a season is extremely difficult to address because production is based on a biological system, so having certainty about the price you will receive at the end of the season will remove a lot of pressure for dairy farmers."
Hoggard urged dairy farmers interested in the NZX milk price and futures options contracts to get professional advice.
"While it will provide farmers with certainty on price there's always someone on the downside when futures are traded. Farmers must get sound independent advice so that they're aware of how this approach changes their risk profile and what this might look like for them at the end of the season."
NZX has formal approval from the Financial Markets Authority and the Reserve Bank of New Zealand for its proposed futuers trading, expected to launch next month.
NZX head of markets Mark Peterson says this is a milestone in commodity risk management for NZ's agricultural sector.
"With 95% of their product sold overseas, NZ dairy farmers are highly exposed to the global dairy market. They have few tools available to help them manage milk price risk which leaves farmers at a disadvantage to their overseas counterparts in the US or Europe, who have access to a wide range of risk management tools.
"Although futures and options contracts will not be suited to everyone, they are a key step towards building a meaningful risk management culture."
Once the contracts are available for trading on NZX's derivatives market, all parties will be required to trade through an NZX broker.