A few months ago I wrote a blog titled Fonterra GMP scheme – should I or shouldn’t I In that blog I concluded that I would likely not take up the June 2015 GMP offer because all indications are that the 2015/16 season would start with a soft opening milk price and firm up towards the end of the season – but ask me closer to June.
Have I changed my mind? The short answer is “no”.
Dairy farmers have until 5pm on Friday the 19th of June to apply for a Guaranteed Milk Price in the range of $4.85 to $5.25. Up to 40 million milk solids are on offer and dairy farmers can choose to lock in a GMP on anywhere between 10 to 75 per cent of their estimated milk production. Fonterra will essentially fill up the quota from the lowest offer upwards until the 40 million milk solids are taken up and then all participants will receive the highest offer within that band.
Now we don’t know what we don’t know. Our thoughts and opinions are heavily influenced by what we read in the media. But nothing I have read lately would make me change my opinion that the milk price will firm up towards the end of the season. The OCR has been reduced (with further reductions likely), NZD has weakened recently (with more likely) and it would seem that there is increasing demand for milk based commodities. So with Fonterra announcing an opening Farmgate Milk Price of $5.25 per kgMS for the 2015/16 season and with the expectation of the milk price firming up towards the end of the season (to $5.70 or more if you can believe what you read) why would you lock in at $4.85 to $5.25? To me there is more chance that I would be better off by not locking in. Currently AgriHQ are forecasting $5.50 per kgMS for the 2015/16 season, Westpac are at $5.70 and ANZ $5.75.
I could be persuaded if I really had my back against the wall – if I just couldn’t sleep at night because I was worrying about how to make ends meet. If I had average to high debt and was spending more than $1 per milk solid covering interest. In which case I would go in with an offer of $5.25 for up to half of my estimated production and count on the scheme not being oversubscribed which has been the case for both the June 2014 and the December 2014 schemes. That way I would lock in my offer of $5.25 and I would be no worse off than the opening forecast. The question then becomes “given my high debt levels can I afford to turn down $5.25 even though it is likely I will receive more”?
That’s my take on the June 2015 GMP scheme. Don’t shoot me if I get it wrong!
All content provided within this blog is for informational purposes only and represent the personal opinions of the writer, James Colin Stewart. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner of this blog will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries or damages from the display or use of this information.
[feather_share]