Farmers miss $7 fixed milk price

Some dairy farmers will be kicking themselves for not signing up to Fonterra’s guaranteed milk price scheme, which is paying out $7 a kilogram of milk solids this season.

Under the scheme, only a portion of a farmer’s total milk supply qualifies for the price, which is significantly higher than the Fonterra forecast price of $5.30kg/ms that most farmers will receive in 2014-15.

Following a successful pilot in the 2013-14 season, a guaranteed milk price was offered in June this year for 40 million kg/ms. Of this, about 26m kg/ms was taken up. This volume equates to about 45,000m tonnes of whole milk powder, or 2 per cent of Fonterra’s milk supply.

Rabobank economist Hayley Moynihan said farmers could bid for a volume of milk at a price which would be guaranteed, as opposed to receiving a farmgate price which fluctuates and is only a forecast until the end of the season.

‘‘Not many farmers chose to take up the option. When the $7 price was offered, that was the forecast milk price at the time, which ended up at $8.40. There will be few who will be kicking themselves, because it would undoubtedly have been a good option for part of the milk they supplied,’’ Moynihan said.

Fonterra said the scheme offered farmers certainty over a portion of their income, and more confidence about taking on debt or carrying out capital works. The scheme also allowed Fonterra to offer its customers stable pricing, and lock in longer- term supply contracts with key customers at set prices, while attracting a premium.

Fonterra spokesman Aaron Atkinson said farmers could offer up to 75 per cent of their supply, or a minimum of 10 per cent.

‘‘Given that this year we were undersubscribed, if farmers had applied for 75 per cent they would have got 75 per cent. We had a full range of applications, from ones who wanted to lock in a small amount to higher,’’ Atkinson said.

Within one month of the June price being confirmed, Fonterra had sold more than 40,000m tonnes of whole milk powder to customers at long term fixed prices and used the futures markets for the remaining quantity.

‘‘We have customers who run large and complex multi- billion dollar businesses and they come to us and ask if we can give them a fixed price six or 12 months into the future.

‘‘ We say we can and charge them a premium because we are giving them certainty,’’ Atkinson said.

Fonterra is offering farmers another chance to take up the scheme in December, following a board meeting when the forecast farmgate milk price will be updated.

It’s the first time there’s been a mid-season offering. This time 20m kg/ms will be available, with a price based off the updated forecast price. Applications will close on December 19.

Atkinson said the continuation of the scheme depended on farmers ‘‘voting with their feet’’. If they found it a useful tool and more and more opted in, then Fonterra would continue to offer it.