Fonterra's June Guaranteed Milk Price set at $5.25 per kgMS

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Fonterra has set the June Guaranteed Milk Price (GMP) at $5.25 per kgMS, the same price as the opening 2015/16 forecast Farmgate Milk Price.

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

Fonterra’s Group Director Co-operative Affairs Miles Hurrell said: “More of our farmers are seeing GMP as a financial risk management tool and are choosing to lock in a price for a percentage of their milk production.

“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.”

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. The applications totalled 45.2 million kgMS, which exceeded the 40 million kgMS available for GMP Agreements.

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

This is the first of two opportunities to lock in a GMP in the 2015/16 season.

The second opportunity will be in December 2015.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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5 Comments

It is interesting what Mike Hurrell has public claimed...

As it flies directly in opposition to the previous year, where Pengxin got the maximum allotment at the top price of $7, because the service was so _undersubscribed_. Would they lie to use?

OTOH, if $5.25 is above your production cost, it sounds like a good deal IM(zero risk stadium seat)O

However most went for less than 5.25.
The 5. 25 was scaled back.
This is not maxing farm gate price.
In The Press it goes on to say now with fixed price ss F can go off and sell that vol, at a greater margin, that will increase div for all farmers.

Where is Mr Tui.

Everyone, even if they offered at lower prices, gets the $5.25. So maybe those who went at sub $5.25 placed their offers strategically? Those who went at $5.25 were the ones to be scaled back, and the ones who went sub $5.25 got all their allocation at $5.25.

How does Fonterra feels about having to pay $5.25? Were they expecting to get more offered for less?

Yes its a bit like being a gdt buyer (vol is stripped from price) but reversed, what we were getting at was:

Fonterra said it would use the certainty from the GMP to lock in longer-term supply contracts with key customers at set prices, attracting an additional premium, which could help to secure more stable earnings for all farmers.
http://www.stuff.co.nz/business/farming/dairy/69695647/farmers-rush-to-f...

seemingly this is a sellers offer price, not a buyers bid price.
and a way of passing "margin" from the "powder/commodity" business (farm gate price) to the "products" bucket (dividend payment).
does F count its "value add business" as a key customer to its "commodity business"..
as other non captive buyers would see through all the details as reported

Word it however they like, taking a amount of product out of the cooperative pool and paying a different price for it is simply not cooperative, end of.