In order to avoid risking volatile milk prices, financial markets operator NZX has developed a new market for dairy farmers in New Zealand.
To fix the future price of milk and reduce uncertainty, the company plans to allow farmers, processors and stakeholders to participate in a futures and options market trading platform.
According to the AAP, the milk contracts will add to the NZX’s existing futures contracts for whole milk powder, skim milk powder, anhydrous milk fat and butter, and its whole milk powder options.
By allowing product prices to be set by the market, global dairy prices have becoming increasingly volatile over recent years as government subsidies and schemes propping up prices have reduced.
According to NZX head of derivatives Kathryn Jaggard, Fonterra had unsuccessfully trialled its own fixed-price scheme, known as the ‘guaranteed milk price’ which allows farmers to lock in some of their milk supply at a fixed price.
“Dairy has opened up in terms of its trade and it has transitioned into a global commodity and is now experiencing similar levels of volatility as other commodities,” Jaggard said.
“The development of these contracts is really in response to demand from dairy farmers and is a consequence of that continued volatility.”
Landcorp, the country’s largest corporate farmer, was disappointed by Fonterra’s unsuccessful scheme as it would’ve benefitted from the ability to plan future operations alongside the price of its production.