16 Feb 2015

Milk price guarantee winner this year

2:18 pm on 16 February 2015

Dairy farmers who signed up for Fonterra's guaranteed milk price scheme this season will find themselves on the right side of the ledger.

The scheme, in its second season, allows farmers supplying the co-operative to offer up to 75 percent of their milk for a guaranteed price.

About 180 farms signed up for the first offer at the start of the season in June, accepting a price of $7 a kilo of milk solids, which was the opening forecast.

About the same number signed up for the second offer in December to supply milk at a guaranteed price of $4.70, which matched Fonterra's current forecast milk price following its steady decline from the start of the season.

That has locked almost 40 million kilos of milk solids into guaranteed prices, but that was less than three percent of what Fonterra expected to collect this season.

Fonterra's head of origination Arron Atkinson agreed that farmers who had taken advantage of the first offer, in particular, were going to be on a winner this season, but he said it was not about speculating on the price.

"I'm sure those farmers are happy and relieved. But we would like to think that those farmers see the advantage of gaining certainty in their business under any seasonal conditions. It supports them making budgeting and purchasing decisions and having conversations with their bankers. So even in a year when the milk price goes up and they've locked in a price, that certainty should still be helpful to them."

Last season the opposite happened, and farmers who locked in some of their milk supply at the opening forecast of $7 saw the final price rise to $8.40 a kilo.

However Mr Atkinson said those farmers should still be happy, because they were still getting more money than if it had stayed at $7.

"And we also hope that they used that certainty to go and talk to their bankers and budget their farms better," he said.

He said farmers had a choice this season of offering between 10 and 75 percent of their milk at a guaranteed price. The biggest group opted to supply about half of their milk at a guaranteed price.

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