Friday, April 12, 2024

Fonterra tweaks fixed milk price tool

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Aim is to improve farmers’ experience, co-op says.
Fonterra chair Peter McBride says there will be years ahead that deliver results ahead of or behind the targets set in 2021.
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The first application period for Fonterra’s fixed milk price programme for the 2024-2025 season has ended with the co-operative offering $7.99/kg MS.

The price in full is $8.09/kg MS, with service fee of 10 cents per kg MS.

The application window opened on March 11 at 7am and closed on March 12 at 7pm.

It is not yet known how many farmers took up the offering.

Fonterra has also changed how the fixed milk price works. Fonterra milk supply director Lisa Payne said the aim is to improve the experience farmers have with it while maintaining or enhancing the benefits it delivers.

“We’re introducing greater flexibility around over-subscribed events, which occur when the requests submitted within an application period exceed the volume of milk we have announced as available for that event. 

“For the coming season, we’ll have some flexibility to increase the monthly volume by up to 10% to better respond to farmer demand.”

The milk on offer will also be doubled, Payne said.

The maximum total volume Fonterra may make available for applications for the 2024/2025 season has increased from 75 million kg MS to 150m kg MS, or around 10% of the co-op’s total New Zealand milk collections.

“It’s also intended to help us further strengthen relationships with key customers who value price certainty for the products they buy from us, and the premiums we receive from these contracts in turn benefit all shareholders of the co-op.”

It also enables Fonterra to lock in longer term contracts and provide price risk management solutions to customers, Payne said.

“Products sold with price risk management solutions also attract higher margins. So overall there is a benefit to all shareholders because the premium from customers goes to the co-op’s bottom line.”

The fixed milk price is a financial tool farmers can use to gain greater income certainty. 

It allows farmers to fix the price of up to 50% of their season’s milk supply with the price based on an independent market price – SGX-NZX Milk Futures Contract. 

It is run once a month for 10 months of the year, and farmers can choose to participate when it suits them and their business.

The fixed milk price offering for the current season varied between $8.68 (March) and $7.55/kg milksolids (July).

Dairy farmers flocked to the first offer but shunned the most recent, when only 18 applications were made.

In March the full allocation of 15 million kg milksolids was taken up by 301 farmers.

In April the $7.74 net offer price attracted 41 applications and only 1.2 million kg were allocated.

In May and June the fixed milk price offer prices rebounded to $8.39 and around 200 farmers took up each offering, with allocations around 7.5 million kg in both months.

The 18 applicants in July took only 380,000kg, an average of about 21,000kg each.

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