Fonterra farmers embrace latest guaranteed price

Farmers are now expecting a farmgate milk price of $4.40 for the current season - the lowest in eight years.

Dairy farmers have flocked to Fonterra's guaranteed milk price scheme, with many opting to lock in farmgate prices at $5.25 a kg of milksolids - the same price as its forecast for 2015/16.

Fonterra went out to Farmers looking for 40 million of milk solids and in contrast to last year, when only 26 million kg were submitted, this latest offer was oversubscribed.

A total of 45.2 million kg was offered by 443 farms, more than double the number that applied this time last year, Fonterra said.

"More of our farmers are seeing the guaranteed milk price (GMP) as a financial risk management tool and are choosing to lock in a price for a percentage of their milk production," Fonterra's group director co-operative affairs Miles Hurrell said in a statement.

"We received a good range of applications from small to large farms from throughout New Zealand, who will now be able to use this income certainty to help to better budget and plan for this season," he said.

Farmers had the opportunity to apply for a GMP for a percentage of their estimated production at one or more of five prices at and below the opening forecast farmgate milk price.

Because the programme was over-subscribed, applications were accepted from the lowest price upwards with applications at $5.25 scaled back by 16.5 per cent.

Fonterra said it would use the certainty from GMP to lock in longer-term supply contracts with key customers at set prices, attracting an additional premium, which could help to secure a more stable earnings return for all farmers, paid through the dividend.