Fonterra's new fixed milk price offer set for opening

The average New Zealand dairy cow herd produces about 158,000kg of milksolids per season.

Applications for Fonterra's new fixed milk price offer open on Monday.

The fixed price programme, a financial tool to help farmers manage their exposure to global price volatility, will be referenced to the NZX milk futures market.

A Fonterra spokeswoman said following this week's Global Dairy Trade (GDT) auction, Fonterra would take the simple average of the final NZX futures settlement price of June 5, 6 and 7 to determine the price.

Farmer-shareholders would be informed of the price and the volume of milk available on which a price could be fixed and could apply from Monday.

Farmers who successfully apply will have to pay to participate.

A service fee of 10c per kilogram of milksolids will completely self-fund the new programme, New Zealand's biggest company has said.

The average New Zealand dairy cow herd produces about 158,000kg of milksolids per season. Farmers will be able to fix the price of up to 50 per cent of their milk production over the 2019-2020 dairy season, which started on June 1.

Fonterra's forecast milk price range for the new season is $6.25-$7.25/kg milksolids.

The GDT price index fell 3.4 per cent this week from the previous auction. Whole milk powder, which determines the farmgate milk price, fell 1.5 per cent to US$3138 a tonne - the fifth consecutive decrease in this powder index.

Farmers will be able to participate in the fixed price scheme up to 10 times a year.

Because the amount of monthly milk volume available for a fixed price will be limited, applications may be accepted in full or in part.

Participating farmers aren't being asked to fund the new scheme because of Fonterra's financial squeeze. Farmer advocate, the Fonterra Shareholders' Council, unanimously approved the programme.

Chairman Duncan Coull said payment was required so shareholders of the big cooperative who didn't participate weren't unfairly burdened with the administration costs.

A previous fixed price scheme called the guaranteed milk price introduced in 2014 did not require farmers to pay a service fee.

That scheme was based on the company's forecasted milk price whereas the next offer is based on an independent market price.

The previous programme, which was limited to twice a year participation, provoked dissent among some of Fonterra's 10,000 farmer-owners who said it was against the spirit of cooperative principles. It was scrapped after three dairy seasons in 2016.