An open market promises to reshape the way farmgate milk is sold, starting next February.
Under the Australian Milk Price Initiative, milk straight from the farm will soon be sold online for delivery to Victorian dairy factories.
This spot market, AMPI co-founder Scott Briggs said, would achieve genuine price transparency for farmgate milk.
But that's only the first step.
Later in 2022, it will be linked to a hedge market allowing farmers, processors and traders to lock in prices years ahead.
One of the farmers to attend briefings ahead of the launch was Lachie Sutherland, who milks 380 cows at Larpent.
Mr Sutherland welcomed the real-time accuracy and local relevance the spot market would usher in, but was most looking forward to being able to lock in long-term pricing once the hedge market was developed.
This will become a current or a spot and forward price indicator for the whole industry of what milk's worth anytime going out, possibly up to three years.
- Scott Briggs, AMPI co-founder
"It gives dairy farmers the ability to control their own destinies, I'm excited about it," he said.
The ability to manage price fluctuations was important to farmers and, he said, their financiers.
"I can take a position and manage my risk for all my inputs like grain and fertiliser but I have no control over the milk side," he said.
"If the industry is going to continue to be a sustainable one, people have got to have security.
"Banks also love security and if you can fix your income and fix your margin, you're pretty attractive."
Still, the hedge market can only be built once authorities have evidence of at least six months of adequate liquidity in the spot market.
Farmers, as well as processors, traders and customers, will be able to participate in the spot market, with minimum volumes of 100,000 litres per trade based on a "standard" litre.
The market will open for 30 minutes of trading twice a month, two days after the Global Dairy Trade auction.
Logistics, including transport, of trades by farmers could be handled through their dairy processors.
In fact, Mr Briggs said the market was designed to run alongside, rather than replace, traditional farmer-processor relationships.
He said the hedge market would bring two benefits.
The most obvious was the ability to smooth out milk price volatility but it would also offer an understanding of where the market expected prices to head.
"This will become a current or a spot and forward price indicator for the whole industry of what milk's worth anytime going out, possibly up to three years," he said.
The Mercari platform that will host the market has long been used to trade commodities and currencies, and Mr Briggs said while it would take time for dairy farmers to become familiar with hedging, similar systems had already been successfully embraced by grain growers.
Mr Sutherland wanted processors to make it easy for farmers to participate.
"I'd hope my company would use it as a tool so I could lock up a portion of my milk in, whether that's 50 per cent, 70pc or more," he said.
"It would certainly give processors who offer that an edge."
To be a reliable benchmark, Mr Briggs said the spot market would only need to trade about 5 million litres a fortnight, or 1.5pc of national production.
Australian Dairy Products Federation executive director Janine Waller said it supported more flexible pricing arrangements and improved price risk management.
"While uptake of AMPI may initially be cautious, ADPF sees the potential of it being an important risk management tool of the future, and members support the goals and target outcomes," Ms Waller said.
AMPI received $560,000 in seed funding via Australian Dairy Farmers following the last federal election.
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