Fonterra farmers scaled back on guaranteed 2014 milk price

Fonterra Cooperative Group, the world’s biggest dairy exporter, has scaled back applications from its farmers to sell milk at a guaranteed price in the 2013/2014 season after being overwhelmed by demand.

In a pilot scheme announced last month, Fonterra offered to pay $7 per kilogram of milk solids, matching its initial forecast payout, for those farmer-shareholders wanting to lock in payment certainty for the 2014 season. It had expected about 200 farmers to participate.

Today it said 328 farmers had offered to supply 37 million kgMS worth $259 million at the guaranteed price, more than double the 15 million kgMS offered, worth $105 million. As a result, applicants were scaled back by 40 percent. Under the pilot, farmers could lock in the price of between 10 percent and 75 percent of their supply.

“While most farmers can live with the market volatility, there are times when some farmers would prefer more certainty as it would help them manage their own farming businesses and that’s why we’ve developed this pilot,” said Bruce Turner, Fonterra’s director of commodity risk and trading. The guaranteed milk price “also allows the co-op to lock in fixed contract prices with its customers.”

Fonterra paid $5.80 per kgMS last season and expects global prices of dairy products to remain elevated through until 2014.

Units in the Fonterra Shareholders’ Fund were unchanged at $7.38 and have gained 4.9 percent this year.