Guaranteed milk price offer

The co-op says the new offer price will be based on the forecast payout review to be carried out by Fonterra's board next month. Applications will close on December 19.

Following a successful pilot in the 2013-14 season, guaranteed milk price was offered in June this season and about 26 million kgMS was taken up. This volume equates to around 45,000 MT of WMP equivalent or 2% of Fonterra's milk supply.

A guaranteed milk price is a financial tool offered to our farmers that allows them to lock in a portion of their milk supply at a fixed price. It has no impact at all on Fonterra's farmgate milk, it says.

"Price as the price paid to farmers is matched against the sale of products to customers," it says.

Fonterra says applications came from a diverse range of farmers and some of the benefits it has delivered to these farmers are:

• Certainty over a portion of their income;

• Allowed more robust budgeting and financing; and

• More confidence around debt servicing and capital investment on farm.

Guaranteed milk price has also allowed Fonterra to fulfill customer demand for stable pricing, and lock in longer-term supply contracts with key customers at set prices, while attracting a premium.

Within one month of the June price being confirmed, Fonterra had sold more than 40,000 MT of WMP to customers at long term fixed prices and utilised the futures markets for the remaining quantity.

Fonterra says guaranteed milk price is still a relatively new financial tool but is becoming an established part of the dairy landscape.

"These initiatives are also offered by other dairy companies in Ireland and the United States, and a number of European dairy companies are working on similar financial tools."