Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
A total of 45.2 million kgMS was offered by 443 farms, at least double the number of farms that applied this time last year.
Fonterra’s group director cooperative affairs Miles Hurrell says more farmers are seeing GMP as a financial risk management tool and are choosing to lock in a price for a percentage of their milk production.
“We received a good range of applications from small to large farms from throughout New Zealand, who will now be able to use this income certainty to help to better budget and plan for this season.”
Farmers had the opportunity to apply for a GMP for a percentage of their estimated production at one or more of five prices at and below the opening forecast farmgate milk price. The applications totalled 45.2m kgMS, which exceeded the 40m kgMS available for GMP agreements.
Because the scheme was over-subscribed, applications were accepted from the lowest price upwards with applications at $5.25 scaled back by 16.5%.
Fonterra will use the certainty from GMP to lock in longer-term supply contracts with key customers at set prices, attracting an additional premium, which can help to secure a more stable EBIT return for all farmers, paid through the dividend.
This is the first of two opportunities to lock in a GMP in the 2015-16 season. The second opportunity will be in December 2015
