Fonterra farmers participating in the company’s Fixed Base Milk Price will be paid a guaranteed price of $6.80 per kilogram of milk solids (kgMS) for a portion of their milk for the 2019/20 season.
Fixed Base Milk Price is a price risk management tool that lets farmers lock in a set price for up to 70 per cent of the season’s milk before it starts, providing greater price certainty and helping them to plan ahead.
Fonterra Australia’s General Manager Farm Source, Matt Watt, says that the continued strong interest in the program, now in its sixth year, shows that Victorian and Tassie farmers want to reduce their exposure to market volatility, at a time when high input prices are having a huge impact on a farmer’s ability to budget and plan.
“Fixed Base Milk Price is like having a fixed interest rate on your mortgage versus a variable rate. You know exactly where you stand with a percentage of your production and this can help to manage margins and make decisions about investing in cost management opportunities.
“The last few years have shown that two of the biggest challenges facing farmers are seasonal conditions and market fluctuations impacting the milk price.
“We can’t control the climate, but with Fixed Base Milk Price we can at least help to take out some of the market risk.
“It’s another tool we’re providing under our Farm Source offering so that farmers can focus on running their business, and complements other financial tools such as the Farm Source income estimator,” says Mr Watt.
To determine the volumes and prices of milk solids under Fixed Base Milk Price, Fonterra used a tender allocation process whereby farmer suppliers offered certain volumes of milk solids at a set price, which Fonterra then worked to match to customer demand.