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.