FIXED MILK PRICE CONTRACTS – SHOULD YOU PARTICIPATE?

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FIXED MILK PRICE CONTRACTS - SHOULD YOU PARTICIPATE?
03 Feb 2017

FIXED MILK PRICE CONTRACTS – SHOULD YOU PARTICIPATE?

Dairy

Co-ops have worked in conjunction with Ornua to ensure more farmers are offered the option of fixed milk price contracts. FMPCs are not for everyone, but they are always worth considering – read some guidance on making your decision.

First, you need to understand that the FMPC is a form of hedging, i.e. it is about sparing you the lows, but it will cost you some of the highs of the market milk price over the period of the contract.

The FMPC gives a degree of certainty for a portion of the value you receive for your milk. This is valuable for farmers with heavy financial commitments (e.g. those that have invested to expand), possibly less so for those who have optimised efficiency and low debt. Farmers in this situation may prefer to take their chances and not miss out on potentially higher market milk prices over the period covered by the contract.

The length of the contract period is very important. For a one-year contract, you need to take a view on whether the market-based price for that year is likely to be better or worse than the FMPC price on offer. For a three year period, that decision is trickier, as the longer the period, the lesser the visibility of market milk prices, but the greater the risk of volatility.

Most of the schemes allow farmers to commit between 5-15% of their overall supplies, but producers who have availed of the longest running schemes (Glanbia) may have significantly more than that committed through consecutive schemes.

So, FMPCs may not be for everyone, but they can play a very strong role in helping farmers managing the risk inherent in market price volatility.

If you are interested, be sure to contact your co-ops to get full relevant details.

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