Record numbers of milk price future contracts traded after recent GDT rise.
Dairy farmers are using milk price risk management tools in greater numbers to hedge $9/kg farmgate milk prices this season.
The number of lots of milk price future contracts traded on the SGX-NZX platform has risen and recently set weekly records for the life of the 2025 contract (MKPU25).
Immediately after the Global Dairy Trade price index rose 1.3% last week, MKPU25 traded prices reached $9.25, the highest level since November 2022.
It followed the September 25 increase of 50c in the Fonterra farmgate milk price forecast range, now $8.25 to $9.75, with a mid-point of $9.
That forecast is second only the $9.25 in mid-2022, but the high expectations have come much earlier this season, when potentially farmers have more time and opportunities to lock in price outcomes over a larger portion of their season’s production.
However, with 11 months of the current season left to run, downside risks for dairy commodities and milk prices are also larger.
NZX dairy analyst Lewis Hoggard said milk price futures and options activity surged from the beginning of August, when MKPU25 set a weekly record of 1294 lots traded.
“Open interest has also increased steadily; there are currently 70,854,000kg MS hedged for this season.”
High futures prices have also resulted in higher prices in Fonterra’s fixed milk price offerings.
The October FMP application window opened at $9.23 with a 10c service fee deducted so a final net price of $9.13.
Farmers were asked to apply for some of 20 million kgMS, being the eighth monthly offering for 2024-25.
The offer price is the average of the daily settlement price of the SGX-NZX Milk Price Futures contract for three days following the first GDT auction of the month.
That offer price is advised to all Fonterra farmers on Saturday morning and they have Monday and Tuesday to make applications.
In mid-2022 the FMP offer prices surged into the range $9-$10 and application volumes were massively oversubscribed and scaled back to 11-12%.
Earlier this year farmers were not attracted by mid-$8 offer prices and in five months between March and July they took just over half of the total 120 million kg on offer.
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