What are my options for managing milk price volatility?
Farmers have three common tools to manage price risk: Fixed Price, Futures, and Puts. Here’s how they compare:
Fixed Price Agreements
How it works: Between March and December, Fonterra allows you to lock in a set price for your milk solids in advance. This price is based on the market at the time of offering, and you can apply to fix a portion of your supply.
Pros: Fixed price agreements are simple and provide certainty. Your income is guaranteed at the agreed price.
Cons: You don’t get to choose the price, it’s set by Fonterra. There’s also a 10-cent service fee per kgMS, and you won’t benefit if market prices rise above the fixed price.
Futures Contracts
How it works: A futures contract is an agreement to lock in a price for your milk solids at a future date. You pay a deposit upfront (called the initial margin) to secure the contract. If the market price drops below your agreed price, you receive payments to cover the difference. If the market price rises above your agreed price, you’ll need to pay the difference. At the end of the contract, the final payment settles the difference between the market price and your agreed price.
Pros: Futures allow you to fix your milk price for a given season. The upfront cost may be lower than it would be if Put Options were used, which means there is less immediate cash outlay.
Cons: Futures fix your milk price for the given season, meaning if the market rises above the level at which you sold futures, you will not benefit from the higher prices. You will also have to deposit margin payments to maintain your position. These payments can cause pressure on cash flow throughout the season.
Put Options (Figured's Milk Price Protection)
How it works: Milk Price Protection simplifies a common financial tool (Put Options) making them easy to access and use through an integrated solution.
You pay an upfront premium to secure a minimum milk price for your milk solids. If market prices drop below your agreed price, you’re protected and paid the difference. If market prices rise, you keep the flexibility to take advantage of the higher prices without being locked in.
Pros: Put Options offer downside protection with upside flexibility. You’re not tied to a fixed price, and there are no unexpected cash payments during the season. While it may cost more upfront, the price is fixed with no unexpected extra costs. The upfront premium may be tax deductible but individual circumstances will vary so we recommend you seek tax advice from your accountant.
Cons: You pay the premium upfront, even if market prices don’t drop. Payments are made at the end of the season.
Which option is best for me?
The best choice depends on your farm’s priorities and how you manage risk. Fixed Price Agreements are ideal for guaranteed income certainty and a simple setup, but you won’t benefit from higher market prices.
Futures Contracts work well if you want to choose your price and prefer a lower upfront cost, though they require regular market monitoring and potential extra payments.
Put Options are best for flexibility, protecting against price drops while benefiting from higher prices, with clear upfront costs and no unexpected payments.
How much does Milk Price Protection cost?
The cost depends on:
Market conditions.
Your production volume.
The minimum price you choose to secure.
Use the Milk Price Calculator on the Milk Price Protection tab to estimate your premium.
Lending options are also available to help cover the premium if needed.
How do I qualify?
To participate you must be a Wholesale Investor that meets the definition of ‘large’ (the investor has net assets or turnover exceeding $5 million for the last two completed financial years). Your accountant will be able to verify this for you.
How do I benefit if the prices go up
Milk Price Protection gives you the flexibility to take advantage of higher market prices. You’ll still receive your full payout from your Milk Supplier. If the payout is higher than the price you secured, you won’t receive any additional payments from StoneX, but you’ve only paid the premium, similar to insurance. If the payout is lower than your secured price, StoneX will pay you the difference.
Who is StoneX?
StoneX is a global financial services company that specialises in helping farmers and businesses manage risks like price volatility. They have decades of experience working with agricultural markets, including the dairy industry, and provide the tools and expertise needed to protect your income. Figured has partnered with StoneX because they are trusted experts in this space, helping farmers lock in prices with confidence.
How does StoneX facilitate the trades?
When you secure a minimum milk price through Milk Income Protection, StoneX handles the financial side of the process. They facilitate the agreements (called “Put Options”) that allow you to lock in a price floor for your milk solids while keeping the flexibility to benefit if prices rise. StoneX makes the process simple by managing the complex trading behind the scenes.
When do I get paid if the market drops?
The final Farmgate Milk Price is announced around September, after the season ends. If the final price is lower than your secured price, StoneX will pay you the difference at settlement.
What’s in it for StoneX?
StoneX charges a fee for their services, which is included in the premium you pay upfront. Their role is to provide expertise and manage the trades efficiently on your behalf. They don’t take risks with your money, they act as the trusted partner facilitating the transaction so you can focus on running your farm.
Why should I trust StoneX?
StoneX has been a leader in agricultural risk management for decades and is known for their reliability and professionalism. They work with farmers, co-operatives, and agribusinesses worldwide to provide fair and transparent financial solutions. Figured partnered with StoneX because of their proven track record in helping farmers manage market volatility.
What do I do if I have further questions?
We'd love to hear from you if you have any questions about Figured Milk Price Protection. You can reach us by email (support@figured.com) or via the green button on the app and we would be happy to give you a call to talk you through anything.