In today’s economic climate, dairy farmers face mounting challenges amidst soaring farm input costs and fluctuating interest rates. To weather these uncertainties, Kylie Filbee-Cronin, a seasoned director in business advisory services and agriculture specialist at Baker Tilly Staples Rodway Taranaki, advocates for a diversified hedging approach.
Filbee-Cronin underscores the importance of not relying solely on one method to hedge milk prices. Instead, she advises farmers to hedge small amounts at regular intervals, ensuring they don’t have all their milk in one basket. This strategy, she believes, provides farmers with a level of certainty in their costs, a crucial advantage in turbulent times.
However, she cautions that selecting the right hedging tools requires careful consideration of individual circumstances. Farmers with minimal debt may weather industry volatility without hedging, while those burdened with significant debt must prioritize protecting their bottom line. For them, hedging becomes a vital risk management tool to safeguard profitability.
The decision to hedge hinges on whether the secured price covers production costs, thereby ensuring financial viability. Farmers must also factor in upfront costs and tax implications when evaluating hedging options. While major processors offer fixed milk prices, alternative hedging products on platforms like NZX and Rabobank provide additional flexibility.
Filbee-Cronin notes a growing uptake of hedging tools among farmers, driven by banks’ favorable response to clients utilizing such risk management strategies. Yet, she emphasizes the importance of understanding the downsides of hedging, advising farmers to consult professional advisors and carefully assess the pros and cons of different products.
Looking ahead, Filbee-Cronin highlights several factors influencing milk price hedging decisions for the upcoming season. These include monitoring milk companies’ sales, anticipating changes in the Global Dairy Trade auction results, and assessing interest rate fluctuations. She likens milk price hedging to locking in interest rates on debt, emphasizing the need for a balanced approach to mitigate risks while capitalizing on market opportunities.
