The move has gained popularity in recent years, with processors saying it offers price certainty for farmers, however, not all processors require milk to be locked in for longer than a year.
On Friday, Burra Foods told its suppliers they could lock in a percentage of their milk at a flat $6 a kilogram of milk solids price for the next three years.
Burra Foods chief executive Grant Crothers said it was a response to the “frustrations” of suppliers to farmgate milk price volatility.
“The last 10 years has seen a significant increase in the volatility of dairy markets and the FMP, making dairying enterprises harder to manage,” he said.
“Locking in a percentage of milk production at a fixed price of $6/kg MS provides income stability and a hedge against future volatility on a pre-determined portion of milk.
“Fixing a portion of income can only increase confidence and provides a tool for Milk Supply Partners (suppliers) to better manage their business. It is part of a solution to income volatility, a topic that keeps many dairy farmers awake at night.”
Suppliers must nominate a portion of their milk solids to lock-in for the three year period starting July 1. Applications close June 15.
Mr Crothers said “analysts” where predicting a range of $5.50-$6.20/kgMS for the coming season.
“Furthermore headline prices quoted by the media are often unachievable on a typical Gippsland supply curve,” he said.
“The option to lock in a portion of milk solids at $6/kg is not only at the high end of these headline price ranges, but is also a guarantee without vagaries – it is the price.
“This program however is not just about next year, it is fixing a price across the next three years.
“I can’t predict the future price but I do know volatility will continue and we are offering our Milk Supply Partners the opportunity to reduce income volatility.”
Burra said its opening price was under review with an announcement expected shortly.
Last month Fonterra announced its fixed base milk price, the price paid for a portion of suppliers milk for the coming season would be $5.90/kgMS.
Australian Consolidated Milk has offered its suppliers a chance to lock in a portion of their milk for three years at $6.04/kgMS.
By: SIMONE SMITH
Source: The Weekly Times