Fonterra’s Fixed Or Floating Trial While a Big Day Approache

MEDIA RELEASE
 
1 May 2013
 
Fonterra’s Fixed Or Floating Trial While a Big Day Approaches
 
Fonterra Cooperative Group’s trial of a Guaranteed Milk Price (GMP) scheme comes with shareholders from tomorrow, being able to indicate how many economic rights they wish to sell to the Fonterra Shareholders’ Fund.
 
“Ten out of ten for Fonterra trying something new with its Guaranteed Milk Price,” says Willy Leferink, Federated Farmers Dairy Chairperson.
 
“In most seasons, excepting the global meltdown of 2008/9, I have the suspicion farmer- shareholders would have ended up being out of pocket if they had ‘fixed’ their payout at the season opening.
 
“Aside from one or two hiccups, we have generally seen forecasts rise towards a season’s end.
 
“Take the current 2012/13 season.  The opening forecast was in the $5.95-$6.05 range per kilogram of milk solids (kg/MS) but $6.12 kg/MS is looking more likely.  For the average herd under GMP that difference adds up to being between $7,500 and some $18,000.
 
“GMP is a risk management tool but it is seemingly one more for the cooperative than farmer-shareholders.  For farmers to fix intelligently, they would need to take into account seasonal weather outlooks here and overseas, global markets and what the dollar may do.
 
“In other words, the sorts of complex risk management farmers rely on the cooperative for and expressed through the forecast payout.  Federated Farmers would be concerned if GMP implied there was going to be less accurate forecasts going forward.
 
“On top of this announcement and from tomorrow, Fonterra’s farmer-shareholders will be able to sell their economic rights in up to a quarter of their production based “Wet” shares to the Fonterra Shareholders’ Fund, or FSF.
 
“As the FSF is currently trading at $7.81 per unit, farmers may be tempted to take the money seemingly on offer.  Doing that marks a shift in the cooperative’s ethos.  Yet farmer-shareholders also need to know that the price won’t be set until 16 May.
 
“The FSF unit price today may not be the farmer price come 16 May.  This is a big chunk of a Fonterra farmer-shareholder’s equity so they need to think long and hard before committing.
 
“Federated Farmers echoes Fonterra’s advice and that is to spend money on quality independent financial advice,” Mr Leferink concluded. 
 
ENDS

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