Fonterra sets guaranteed milk price at $7kgMS in pilot scheme

Fonterra Cooperative Group, the world’s biggest dairy exporter, has set the guaranteed price in its pilot scheme at $7 per kilogram of milk solids for those farmer-shareholders wanting to lock in payment certainty for the 2014 season.

The guaranteed milk price matches its initial forecast for next season, and is part of a scheme letting farmers accept a price for up to three-quarters of their supply, the Auckland-based cooperative said in a statement. Fonterra expects about 200 farmers to participate. It paid $5.80 per kgMS this season.

“We will monitor the pilot over the next season and provide feedback to all shareholders on the benefits and the risks and this way farmers can see if it is something that might suit them in the future,” director of commodity risk and trading Bruce Turner said. “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.”

Turner said the pilot scheme will create greater certainty for Fonterra by letting it “lock in contracts with customers at a set price, so that we can make sure we have the right margins so there is no impact or risk if there is a fall in prices.”

That certainty in how much Fonterra has to pay for milk at the farmgate creates security for potential dividends to its farmer-shareholders. That in turn relates to how much it distributes to outside investors via the listed Shareholders’ Fund, whose interests are somewhat at odds with how much Fonterra pays for milk supply.

Units in the fund were unchanged at $7.25 yesterday, and have gained 3.4 percent this year.

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