Being New Zealand’s largest exporter there is naturally much interest in Fonterra’s foreign exchange hedging position and performance, particularly from their dairy farming suppliers/shareholders. The chart above plots their published annual average “achieved” NZD/USD conversion rates for each year. Up until early 2006 the company operated a 15-month forward, 100% rolling hedge policy. As could be expected, the average achieved rates under this regime were delayed spot, less the forward points. Since 2006 Fonterra have moved to a shorter and more flexible hedging horizon. Their average achieved rate for the 12 months ending July 2008 was 0.7400, so the shorter-term hedging in 2006 and 2007 was ineffective against the relentlessly rising NZD value. Fonterra appears to be only carrying a 6-month maximum forward hedge book in recent times, thus they are well placed to pass-through the benefits of the massive NZD depreciation into the milksolids payout in the second half of 2009. The big question is whether Fonterra is now seriously lengthening their hedging horizon to secure the 0.5000 exchange rate for coming years?