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Wednesday, 20 May 2020 09:55

Dairy farmers snap up fixed milk price options

Written by  Sudesh Kissun
Dairy farmers are seeking the safety of a fixed milk price as global economic uncertainty continues. Dairy farmers are seeking the safety of a fixed milk price as global economic uncertainty continues.

Dairy farmers are increasingly seeking the safety of a fixed milk price (FMP) as global economic uncertainty continues.

Fonterra says its FMP offer last month attracted a record oversubscription from farmer shareholders.

The co-op allocated 7.5 million kgMS to 756 farms at $6.42/kgMS in April: farmers had offered 57.8 million kgMS for contracts.

Fonterra says the significant oversubscription highlighted the benefits of the financial tool for farmers, particularly given the uncertainty around Covid-19, but has meant every farmer will only receive around 13% of what they applied for.
“We can only offer a certain amount based on our ability to offset this with forward contracts with customers. There will be more application windows each month up to December for the 2020-21 season,” it says.

The country’s second largest processor, Open Country Dairy (OCD), says it had an “overwhelming response” to its latest FMP contract offer.

OCD offered its third FMP for the 2020-21 season at $6.30/kgMS, the offer closing May 8.

While OCD hasn’t released details of its FMP uptake, chief executive Steve Koekemoer told suppliers in an email that the latest offer “has once again had an overwhelming response”. 

“We continue to work very hard to look for these opportunities to provide some price security to you,” he wrote in the company’s May newsletter to suppliers.

OCD is also working on a FMP trading platform to make the process easier for farmers.

“It will be introduced to all of you at the July round of meetings and we plan to have it fully operational later in the year,” Koekemoer says.

Fonterra, which runs a FMP contract every month, offered $5.97 for 12.5 million kgMS to its farmer suppliers this month. The co-op retains 10c/kgMS as a service fee.

In March, it allocated 5 million kgMS at $6.90/kgMS to 238 farms. It received applications for 15 million kgMS.

Fonterra was due to release details of its May uptake as Rural News went to print last week.

Financial tool

Fonterra says its fixed milk price (FMP) lets farmers:

• Fix part of their income at a set market-based milk price.

• Budget and forecast more accurately in a volatile milk price environment.

• Add a simple tool to their financial toolkit to use when it suits.

• Submit further applications to supply additional milk volume at a FMP as production changes and global prices shift during the season.

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