Almost ignored in the bell-ringing beginning of Trading Among Farmers (TAF), it is the main purpose for the elaborate co-operative capital restructure which has taken five years to build.
The $525 million Fonterra Shareholders’ Fund (FSF) with its Janus faces of economic rights and investment units attracted all the attention, when as many as 10,000 new stakeholders joined the “family”.
Added to existing bond-holders, investors now considerably out-number Fonterra farmers.
The launch of listed FSF units at $6.67 at midday on Friday instantly added about $3 billion to farmer-shareholders’ equity, as Fonterra shares jumped off the $4.52 “peg” on which they had hung for four years.
But the FSF is only there to make the market for the actual trading of co-operative shares between farmer-shareholders exclusively, plus a small number of incoming or exiting Fonterra farmers.
Because international dairy prices and/or climatic conditions at home will tend to push farmers en-masse into either buying or selling shares, the FSM needs considerable liquidity or depth. This is provided by the FSF.
Nothing kills a sharemarket like lack of liquidity, and Fonterra is required by the Dairy Industry Restructuring Act and Amendment to provide open entry and exit to the co-operative.
So it also has a Registered Volume Provider (RVP), initially Craigs Investment Partners, to be continuously active in offering to buy or sell shares.
“(This is) so that farmer-shareholders will have a party willing to trade at least a minimum volume of shares,” the FSF prospectus said.
But Craigs RVP cannot own shares or vote them. The shares in which it has an interest will be held in trust by the Fonterra Farmer Custodian, who has been issued 110,000 for a start.
Both the FSF units and the FSM shares will be traded on NZX platforms, separately.
The FSM market is anticipated to be quiet initially, because all 10,500 Fonterra farms are fully shared after last season’s bumper milk production.
The most-recent capital inflow from farmers was about $400 million and raised the total number of shares on offer at the time of the prospectus to 1.522 billion.
To which has been added 95 million new shares (90m of them owned by Fonterra itself) to back the investment units in the $525m FSF.
Fonterra’s TAF general manager Aaron Jenkins said farmers would be advised of their share standard after the end of the dairy season on May 31 and they would have six months to comply by trading on the FSM.
Most will be effectively over-shared in 2013, because of the huge 2011-12 season and the introduction of the three-year rolling average for share standard.
Farmers might use the FSM meantime “to make their share portfolio work” or to buy shares to cover increasing production and avoid the 5c/kgMS discount on non-shared milk.
The application period for acceptance as a Fonterra supplier will be mid-December to mid-February, after which newcomers could seek shares.
But joining and retiring from the co-operative will be easier by allowing up to three seasons to buy the necessary shareholding or to exit.
More than 1500 farmers have already applied for a trading log-on for the Fencepost FSM transaction site, although trading can also be done through NZ sharebrokers. The Fencepost route doesn’t incur brokerage.
Disclaimer: Hugh Stringleman owns Fonterra units.