Price risk management
Managing the risk of dairy price fluctuations
The underlying price of milk is constantly fluctuating on the global market, affected by everything from supply and demand, to weather. This volatility can have a significant impact on your business, affecting your ability to forecast, budget and manage cash-flow and profitability.
If you’re looking for ways to manage your risk around dairy price fluctuations, we have three ways to do this.
Manage your price risk with Fonterra solutions
We have five ways to reduce your exposure to dairy price movements, letting you give your customers firm price commitments with confidence.
Long fixed-price contracts
A simple way to achieve price certainty. You lock in a fixed-price for a term by agreeing to a contract for a specified quantity. This gives you surety of price and supply.
Forward price curve
If you have a supply agreement with Fonterra, you can have maximum control over the price you pay into the future with a contract for a specified monthly volume. Each month, you receive a menu of prices for the next 12 months. You decide how much of your specified monthly volume you’d like to lock in at each price. Lock in your whole volume, or no volume - it’s up to you.
Physical price collar
Choose the price range that you’re happy to float within (referenced to a market price) for a specified quantity. Different contract rates let you widen or narrow the gap between the highest and lowest prices.
Sophisticated and expanded use of the pricing elements that make up a price collar. This allows for more targeted achievement of price points and/or the mitigation of specific risk scenarios.
If you’re buying a unique product portfolio without suitable reference, or you just want a different approach, a bespoke solution could be the answer. We can create a combination of standard products, use alternative price reference indices or work out something new.
Futures are tradeable contracts that let you lock in a price to be paid in the future. The contract will specify the item being bought, the quantity, the price and the date of payment. Benefits include:
- Universally accepted and traded across global markets and commodities
- Transparent and independent, with many buyers and sellers acting anonymously
- Buyers and sellers can reduce their price risk exposure
- Market price is readily available; updated every minute during trading times
- Liquidity in these markets is increasing, making them a more effective tool
Entering into exchange-traded futures takes time and money. Typically, you would use a bank or broker.
Find out more
Dairy Futures are independently traded and not supplied by Fonterra. Ask your account manager or email us for information.
Using Global Dairy Trade to manage price risk
Regularly buying in advance, at fixed prices, limits your exposure to changes in market prices. But negotiating prices every month with multiple suppliers takes a lot of time and effort.
Find out more about GDT Events and GDT Marketplace on the Global Dairy Trade website.
Or talk to your account manager about using Global Dairy Trade to manage your price risk.
Disclaimer: The information provided on this web page is necessarily generalised, and does not constitute investment advice or a securities recommendation of any offer or solicitation to buy, sell, or subscribe for, any securities, contracts or derivatives. Fonterra, its officers, employees or agents do not warrant its accuracy, adequacy or currency, or that it is suitable for your intended use.