New Zealand dairy farmers will soon be able to hedge their bets over milk prices with a new futures contracts scheme.
Similar schemes have been commonplace in Europe and the United States for several decades but from May 27 local farmers will have the ability to hedge prices for the season.
Federated Farmers dairy spokesman Andrew Hoggard welcomed the NZX move.
“It’s good to have options and this is an option for farmers who can access good solid advice.
“People will say that the co-op [Fonterra] should do better but the reality is the co-op doesn’t have control over the world milk supply,” Hoggard said.
He said the key thing was that it offered farmers certainty although it could be regarded as a gamble.
“Let’s say you fix in $5.20 per kilogram of milksolids and the price shoots up to $5.60, you will get $5.20 from Fonterra and someone else will get the extra 40c.
“But if the price drops to $4.80, Fonterra will pay you that and someone else pays you 40c,” Hoggard said.
It was similar to the now ditched Fonterra guaranteed milk price scheme but was more complex, he said.
No fees have been set for the scheme. These would be charged by the brokers who deal with the contracts.
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NZX said it had consulted with dairy industry participants and NZX Derivatives Market stakeholders, and gained formal approval of the contracts by the Financial Markets Authority and the Reserve Bank.
NZX head of markets Mark Peterson it was expected demand for the contracts would be relatively slow at first.
“With 95 per cent of their product sold overseas, New Zealand dairy farmers are highly exposed to the global dairy market. The new futures and options contracts will help to level the playing field with their overseas counterparts in the US or Europe, who have access to a wide range of risk management tools,” Peterson said.
Quote vendor codes, exchange fees, starting prices, the final margin circular and all other details pertaining to the first trading day will be released to the market in the coming days.
NZX and participating brokers will be holding educational seminars throughout the National Agricultural Fieldays on June 15-18.
The launch of the related milk price options contracts will be announced in June.
By: Gerard Hutching
Source: NZFarmer.co.nz