Fonterra Australia milk price: A fix for volatility

Tenders have opened for the Australian suppliers to submit a farmgate milk price at which they would be happy to lock in up to 70 per cent of their milk supply for the season starting July 1.

As part of the tender process, Fonterra also asks customers for price tenders and then an FBMP is agreed.

Suppliers are expected to be notified if their tender has been accepted by May 11. Tenders close at the end of this month.

Mr Watt said this time of year farmers were often concerned about the upcoming season, when the “autumn break is in question” and he said that potentially drove interest in the FBMP.

“Last year the break was more set by this time and there was a greater level of confidence,” he said.

Last year the FBMP clearing price was $5.80 a kilogram of milk solids — a premium to the current farmgate milk price. Suppliers who participated in the FBMP received that price for the portion of milk which they committed. They also received the 40c/kgMS incentive on top of that price.

Fonterra Australia said its current farmgate milk price was $5.62/kgMS, plus the 40c/kgMS incentive.

Fonterra introduced its FBMP in Australia in the 2014-15 season. The first year of the FBMP was $6.22/kgMS.

At the time, Fonterra said up to half of its suppliers who signed up to the FBMP locked in 50-70 per cent of their milk supply. Fonterra aimed to collect 100-150 million litres that year from this program.

Mr Watt said the level of interest in this risk management tool had been “pretty consistent” at about 100 million litres of milk annually or 10 per cent of supply. But Fonterra has increased its supply off the back of farmer movement between factories enticing supply with its 40c/kgMS incentive paid this year.

Its milk collection was up 28 per cent for the year to the end of February and it expects to process 2.2 billion litres this season.

Mr Watt said FBMP had provided certainty for farmers.

“Farmers who have used it historically, used it to lock in a portion of their price and then could confidently lock-in input prices,” he said. “If you haven’t got milk price locked in it is more difficult to do that.”

The FBMP is offered for a year, but Mr Watt said Fonterra was looking at ways it could offer it over a longer term in response to supplier interest.


Source: The Weekly Times


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