New Zealand cooperative dairy giant Fonterra is strengthening its hedging policy in order to lessen the short-term impact of foreign currency movements on earnings and payout.
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Fonterra said the changes will take effect for the new dairy season starting on 1 June.
In the past, the dairy industry has typically hedged 30-70% of its earnings over a 12 month period, and 0-30% of its earnings over a 13-24 months timeframe.
Under the new policy, Fonterra’s earnings for the next 15 months will be fully hedged against any change in the value of the NZ dollar against the US dollar. Although measured in US dollars, the protection will take account of all major foreign currency exposures.
The new policy will mean that payout will be more predictable. However, payout will still be affected by changes in commodity prices, product mix and sales volumes, among other things.
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By GlobalDataFor example, if commodity prices fall, the returns to Fonterra will fall, regardless of whether these are expressed in US dollars or NZ dollars.
A small number of shareholders currently do their own hedging. The new policy will make it easier for them to do so.
Fonterra said it would provide shareholders each month with information allowing them to calculate their share of the group’s hedging position. Shareholders can then use this information to decide if they wish to offset to any extent Fonterra’s hedging position, or hedge their exposures over a longer time period.
