NZX to create milk price futures market

  • 13/05/2016
NZX to create milk price futures market

NZX, the financial markets operator, will launch its milk price futures contracts on May 27, followed later by options contracts.

Wellington-based NZX last month detailed its plans to start a futures and options market for milk on its trading platform, allowing farmers, processors and others linked to the local dairy industry a way to fix the future price of milk to reduce uncertainty.

The milk contracts will add to the NZX's existing futures contracts for whole milk powder, skim milk powder, anhydrous milk fat and butter, and its whole milk powder options.

"As expected with new derivatives products, we expect that liquidity in the market will build slowly at first," NZX head of markets Mark Peterson said in a statement.

"We will continue to focus our efforts on growing market participation and trading activity, and educating interested parties on the benefits of commodity risk management tools."

Global dairy prices have become increasingly volatile over recent years as government subsidies and schemes propping up prices have reduced, allowing prices for more products to be set by the market.

For farmers, that's meant huge swings in prices, with Fonterra paying a record $8.40 per kilogram of milk solids in the 2013/14 season but just $3.90/kgMS in the current 2015/16 season.

"With 95 percent of their product sold overseas, New Zealand dairy farmers are highly exposed to the global dairy market. The new futures and options contracts will help to level the playing field with their overseas counterparts in the US or Europe, who have access to a wide range of risk management tools," Peterson said.

The launch of the related milk price options contracts will be announced in June following the futures contracts launch, NZX said.