Dairy giant Muller has revealed further details of a new contract option to allow farmers to fix the price of their milk for up to 12 months ahead.
The firm, which is the main milk buyer in the north and north-east, announced plans to introduce its Muller Direct Futures Contract earlier in the year.
In an e-mail to the company’s 700 farmer suppliers who are not on aligned contracts with supermarkets, agriculture director Rob Hutchinson said closer collaboration within the supply chain would bring benefits to both the company and farmers.
“Let’s face it, there is a lot of uncertainty out there. The markets in which we operate are unpredictable and frequently unforgiving, and the impact of the UK’s departure from the EU is still to be determined,” said Mr Hutchinson.
“Yet, we can be optimistic. Britain remains one of the best places in the world to produce milk and in Muller you are supplying a progressive company which is investing more than £100million to ensure that consumers can buy more dairy products made in Britain with milk from British farmers.”
He said farmers would be given the opportunity to lock into a monthly price for a proportion of their milk volume for up to 12 months ahead.
This, said Mr Hutchinson, would help farmers manage their businesses against the backdrop of a volatile market for farmgate milk.
He said the company’s non-aligned farmers would now be referred to as Muller Direct producers.
“We want to give recognition to this group and to ensure that you have the focused support you need to help you achieve your ambitions,” added Mr Hutchison.
An information booklet supplied to farmers sets out the way in which the base price for milk on the new contract will be calculated.
It will be based on the European Energy Exchange (EEX) market prices for skimmed milk powder and butter calculated through independent FCStone/milkprices.com. Deductions will then be made before the futures base price is set.
These are: 2p a litre for transport; a 5% processor margin for Muller; and a 0.05p a litre fee to cover the cost of hedging for Muller.
Muller said the minimum volume farmers will be allowed to place on the contract is 10,000 litres per month, and to qualify the farmers must have produced a minimum of 4,000 litres in the past 12 months.
The company said farmers may choose to fix forward or take the monthly price of the EEX market.
Fresh deals to sign up to a fixed price will be offered to farmers at a set time every month.
Stephen Bradley, of milkprices.com, said: “This contract allows suppliers to take an element of control in order to build some milk price stability into their businesses.”
Farmer meetings are planned to explain the new contract in the next few weeks.
