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Exchange Effects on Dairy Payout

Greetings Readers

The rapid rise by the NZ dollar is causing much speculation about its effect on farm incomes.

Irrespective of the economists claims that climate variation has a greater effect on farm incomes a higher dollar against our main trading currencies will be felt in farm returns. If only because the processors and traders will react to protect their exposure to the change by lowering prices paid.

The mechanism of buying exchange forward has become a major discussion point of the activities of Fonterra. Little is disclosed about the real benefit over time of the industries exchange operations.

It may be claimed the primary objective of taking the forward exchange cover is to ensure the certainty of the payout projected.

With perhaps a 15% improvement in world dairy prices since last it is surprising that Fonterra is persisting with a projected $3.70 payout assuming the much vaunted 60% forward cover was in place.

Could it be that Fonterra is indulging in its own form of between season price smoothing to protect next seasons payout?

Good Farming

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