NZX poised to announce milk futures contract aimed at farmers

The NZX is expected to announce plans for a new milk futures contract tomorrow.

The NZX is expected to announce plans for a new milk futures contract tomorrow, which will be aimed at picking up where Fonterra's controversial guaranteed milk price scheme left off.

The contract, which will allow farmers to lock in farmgate milk prices, is expected to be up and running by June.

Unlike the current NZX dairy derivatives market, which is priced in US dollars on a per tonne basis as a facility for the big manufacturers and customers, the milk futures contract will be priced in New Zealand dollars per kg of milksolid and will be aimed at farmers, brokers and banks.

The Herald understands the Financial Markets Authority has already given its approval for the contract, and that a formal announcement will be made by the NZX tomorrow.

Fonterra kicked off its guaranteed milk price scheme in 2013, allowing farmers to lock in initially at $7.00 a kg of milksolids for up to 75 per cent of their milk supply. The scheme was ditched in 2015 after getting a mixed reaction from farmers.

In June 2015, a total of 45.2 million kg of milksolids was offered by 443 farms under the guaranteed milk price scheme, more than double the number of farms that applied the previous year. The offer had to be scaled back by 16.5 per cent.

The NZX's current dairy derivatives market runs alongside the GlobalDairyTrade (GDT) bi-monthly auction platform. The market has proven to be a valuable indicator of the general direction of prices on the GDT platform.

Fonterra's current farmgate milk price sits at $3.90 a kg of milksolids, compared with a $5.25/kg average breakeven point for farmers. Tomorrow's GlobalDairyTrade auction is expected to show a 5 per cent fall in the GDT price index, and a 5 per cent drop in the most important product, whole milk powder.