This plain English explanation is for anyone as confused as I was on Friday following Fonterra’s second announcement.
The May and June milk price is still slashed to $1.91kgMS
The prices outlined in the original announcement still apply. Friday’s announcement concerns milk to be supplied in 2016/17 but the amount you receive hinges partly on how much milk you supply in May and June 2016. Baffled? Stay with me for a minute.
Loans are still available in the same format
Nothing has changed in terms of the loans announced on May 5.
Why the latest announcement?
Although nobody came out of the May 5 announcement a winner, if your peak milk production was in May and June, you suffered far heavier losses than farmers whose herds peak in Spring.
Fonterra’s Friday May 13 announcement is designed to even out the impact.
July and August milk now attracts extra for the volumes you supplied in May and June
Fonterra will pay $2.50 kgMS extra for July and August milk in 16/17 but only for up to the same volume of milk you supplied in May and June.
Here’s an example: if Old Macdonald supplies Fonterra 10,000 kgMS in May and 10,000 kgMS in June but 15,000 in July and 15,000 kgMS more in August, she will be paid the extra $2.50 on 20,000kgMS rather than on 30,000 kgMS.
The remaining 10,000kgMS will be paid at the normal July and August rates (that’s base price + quality + production + seasonal incentives). So, Old Macdonald would find $2.50 x 10000 = $25,000 extra in each of the milk cheques that arrive on August 15 and September 15.
If, on the other hand, Old Macdonald supplies Fonterra a total of 20,000 kgMS for May and June but only 15,000 kgMS for July and August, she will still be paid the extra $2.50 kgMS on 20,000 kgMS.
The money is coming from the rest of the year
The milk price Fonterra pays farmers is made up of four components:
- A base price paid at the same rate every month of the year for fat and protein (fat + protein = milk solids)
- Quality incentives
- Production payments
- Seasonal incentives – which are apply in the “off-season” months of January to July.
To pay for the extra money announced on Friday, Fonterra will lower the base component of the milk price by 19 cents per kgMS. In other words, you may receive extra money in your August and September milk cheques but money will also be deducted every month for the whole of 16/17.
About this post and me: Milk Maid Marian supplies milk to Fonterra and this post was checked by Fonterra Australia for accuracy.