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Why milk price hedging is a game-changer for NZ dairy farmers

13 June 2025

Milk price volatility is a constant challenge for New Zealand dairy farmers. As the global market ebbs and flows - influenced by everything from trade policies to unpredictable weather - the dairy payout remains the single biggest driver of farm profitability outside of production. Yet, too many farmers leave their income exposed to these swings.

At Findex, we believe it’s time to rethink the way that risk is managed. We help farmers with hedging strategies (a risk management tool that allows farmers to lock in a set price for a portion of their milk production) so they can take control, secure consistent returns, and build a foundation for long-term financial management.

Why hedging matters for your farm

Just as you’d protect your farm’s assets against fire or flood, hedging safeguards your cash flow against an unknown milk price. As I often tell our clients, farmers already fix interest rates and feed costs—key inputs for any agribusiness. So why not hedge the biggest variable of all: the dairy payout?

Hedging isn’t about chasing the highest price or speculating on the global market. It’s about risk management — locking in predictable returns and knowing your accepted position to shield your farm from devastating price drops.

Thanks to modern agritech and a growing range of user-friendly tools, it’s never been easier to utilise these strategies. From milk price futures traded on the Singapore Exchange (SGX), to derivative options, there are more ways than ever to manage price risk.

Hedging: An investment in certainty

At its core, hedging is about trading a known cost (the premium) for protection against an unknown. It’s an investment in certainty over uncertainty, offering peace of mind in a world where the unexpected is always looming.

The process starts with understanding your farm’s breakeven point. This varies from one operation to another, but typically includes operating costs, interest, loan repayments, drawings, capital expenditure, and a reasonable return.

With this baseline, we tailor a hedging strategy to match your risk appetite, cash flow needs, and long-term goals.

Crafting a strategy that works

Hedging isn’t a one-size-fits-all solution. At Findex, we integrate multiple tools, carefully selected based on market pricing and your farm’s unique objectives. Our financial advisors assess the attributes, costs, and cash flow impacts of each product, ensuring the strategy aligns with your budgeting and governance framework.

A common hedge strategy is the "one-third" approach. Depending on futures pricing and your breakeven point, this strategy typically involves fixing one-third of production, protecting another third with put options, and leaving the remaining third floating. This ensures two-thirds of your production is safeguarded at a price level you're comfortable with, while also allowing two-thirds of your production to benefit from potential price increases beyond that protected threshold.

We also recommend averaging in your hedging over time, even across multiple seasons, trading at the most liquid points, rather than trying to time the market

This is crucial in fast-moving global markets, where exporters face constant price fluctuations. By using the financial tools available, we help strike a balance between protection and opportunity.

Simplifying the complex with expert advice

Let’s be honest, hedging can seem daunting. The financial instruments involved—futures, options and derivatives—aren’t exactly light reading. But farmers don’t need to be financial experts. You’re already scientists, mechanics, and labour managers, mastering the complexities of running a farm. That’s where Findex steps in.

Our team takes the time to understand your business, risk tolerance and cash flow needs. Using cloud accounting and automation, we streamline financial management, giving you a clear picture of your farm’s performance. From there, we build a hedging strategy that’s straightforward, effective, and designed to deliver certainty and reduce risk in an uncertain world.

Part of a bigger picture

Hedging is just one piece of the puzzle. At Findex, we advocate for a holistic approach to agribusiness success. This means combining hedging with tax planning and budgeting, to strengthen your farm’s resilience. It also means looking ahead to succession planning, ensuring your legacy endures for future generations.

In an era of rapid innovation, tools like agritech and cloud accounting are transforming how farms operate. Meanwhile, automation is reducing labour demands, freeing up time to focus on strategic decisions.

By integrating these advancements with smart risk management, we’re here to help you navigate volatility with confidence.

Secure your milk price. Back your farm’s future.

While all reasonable care is taken in the preparation of the material in this document, to the extent allowed by legislation Findex accept no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Findex assumes no obligation to update this material after it has been issued. You should seek professional advice before acting on any material.

The title 'Partner' conveys that the person is a senior member within their respective division and is among the group of persons who hold an equity interest (shareholder) in its parent entity, Findex Group Limited. The only professional service offering which is conducted by a partnership is external audit, conducted via the Crowe Australasia external audit division and Unison SMSF Audit. All other professional services offered by Findex Group Limited are conducted by a privately-owned organisation and/or its subsidiaries.

The information contained is of a general nature only and does not take into account your objectives, financial situation or needs. You should consider whether the information is suitable for you and your personal circumstances. Before you make any decision in relation to a financial product, you should contact one of our financial advisers.

13 June 2025

Milk price hedging - a tool for dairy farmers | Findex