Fonterra farmers have dilemma over guaranteed milk price
Fonterra is expecting keen interest in its next guaranteed milk price offer next month as its farmers walk the plank between fear of the bad getting worse, or some price security with the risk of being locked in if prices improve.
It’s a dilemma faced by slaves to interest rates, and while Fonterra’s guaranteed milk price (GMP) programme boss Arron Atkinson is not suggesting next month’s offer for 40 million kilograms of milksolids will be oversubscribed, he expects from GMP meeting turnouts and farmer interest this year there will be ‘‘a good level of interest’’.
A GMP meeting he held in Te Aroha in the Waikato on Thursday lured 70 farmers.
Along with the milk price this season, the GMP scheme has been a rollercoaster ride.
Fonterra’s offer in June last year for 40 million kg/ms at a GMP price was well undersubscribed, which saw the cooperative’s then-opening season forecast of $7kg applied.
The 2014-2015 milk price forecast has since plunged to $4.50.
But on the flipside, farmers who opted to commit some of their milk early in the 2013-2014 season lost out heavily as that season’s milk price soared to a record high.
Fonterra introduced the programme in 2013 and has made two GMP offers a season since, in June and December.
For the June offer, farmers can commit up to 75 per cent of their supply at a tendered price.
Atkinson said this year’s December offer would again be for 20 million kg of milksolids. Last December’s offer was also undersubscribed and the GMP was set at $4.70 a kg, the milk price forecast at the time, meaning some farmers would still come out ahead.
The introduction of the GMP has been controversial. Some Fonterra farmers say it is anti-cooperative because it offers a milk price that differentiates between shareholders. The tension is still there. Fonterra Shareholders Council chairman Ian Brown still says the scheme is ‘‘a pilot’’.
Atkinson said the pilot question was ‘‘a moot point’’ because the Fonterra board reviewed the wisdom of its continuation every year. Fonterra’s publicity staff in April last year headlined a website item ‘‘Fonterra offers guaranteed milk price after successful pilot’’.
Atkinson said there was growing understanding among shareholders about the programme but acknowledged ‘‘on-going concern’’, with claims of cross-subsidisation between shareholders.
He agreed this sentiment had fuelled criticism that the GMP was anti-co-operative but believed the more farmers learnt about the programme and the ‘‘nuances’’ of the milk price, the more comfort they took that this tool was available to them in volatile times.
The June offer will open immediately Fonterra directors announce the opening forecast for the 2015-2016, expected on May 27.
Atkinson said Fonterra was sticking this season to the same GMP offer milk volumes as last year because it was comfortable in being able to sell that volume to customers and because its farmers had yet to demand more volume be offered.
He said the industry had seen two years of ‘‘wild volatility’’ which had sheeted home to farmers the fact that the milk price could fall sharply.
There were still a lot of perceptions and misconceptions about the GMP scheme but it did draw a line in the sand, he said.
‘‘It’s a very visceral measure of the volatility. To my mind, that means if that volatility and those numbers are so disparate, it only drives home the importance of having a tool to manage that volatility.’’