Stock exchange operator NZX is developing tools to help farmers protect themselves against fluctuations in the dollar and milk prices.
According to a report from newswire Bloomberg, new NZX chief executive Tim Bennett wants to introduce ''dairy swaps'' within the next 12 months, aiming to give dairy farmers more price certainty and curb the currency risk they face with NZX's current futures contract.
The plans may be announced today.
While global dairy prices have been recovering in recent weeks, the boost has been offset by a strong New Zealand dollar. Global dairy giant Fonterra cut its forecast payout for the 2012/2013 season by 30c to $5.65 - $5.75 on August 28.
Bloomberg reported Bennett saying a new generation of farmers would need to borrow heavily, increasing the demand for hedging tools.
"If we want to get young farmers on to the farms, and own those farms, then they will need risk management tools because the lenders will want to reduce the price volatility. That's why this is good for the economy."
Hedging tools help provide certainty by allowing users to lock in a price for a product which would otherwise fluctuate according to the market.
NZX already provides some dairy futures, linked to the GlobalDairyTrade auction prices, however these are denominated in US dollars, exposing New Zealand users to currency fluctuations.
- © Fairfax NZ News
Do you agree with Fonterra's decision to hold its forecasted payout at $8.30 a kg of milksolids and slash its predicted dividend from 32c a share to 10c?Related story: 'Abnormal' situation hits Fonterra forecasts