Wednesday, July 6, 2022

Dry season bolsters potential size of Fonterra Fund

A decrease in the volume of milk produced in the past season means Fonterra suppliers generally have more shares than they are required to hold. Should they decide to trade these shares then the total size of the Fonterra Shareholders’ Fund could  exceed the target level for the fund, which is 7% to 15% of the shares on issue. 

Fonterra shareholders must hold one share for each kilogram of milk solids (kgMS) they supply.  This is referred to as the Share Standard.  A recent change in rules means the Share Standard is calculated from a rolling average over the past three seasons, rather than a single season.  The change in rules, combined with the drought reducing production expectations last season, means many Fonterra suppliers are now holding excess shares.  These shares are referred to as dry shares.  Fonterra farmer shareholders can own as many dry shares as they hold wet shares.  Farmers can freely sell their dry shares on the Fonterra Shareholders' Market, so these dry shares represent an available pool that could be exchanged for Units.

 

 

It is extremely unlikely that Fonterra shareholders will sell all of their dry shares.  Milk supply is likely to increase again next season, therefore most farmers are expected to hold onto at least some of their additional shares to back the additional milk solids which they plan to supply.  

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