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Record NZX dairy futures volume in July, but lagging year-to-date

Monday 29th July 2013

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NZX's dairy futures market reached a record monthly trading volume in July as more than 2,000 skim milk powder contracts traded for the first time, though total volumes in all categories are lagging behind 2012 on a year-to-date basis.

The market reported 5,225 lots traded this month across all categories of dairy products offered in the NZX futures market, beating the previous record in March last year by 1,050. Whole milk powder was the biggest contract traded at 2,310, followed by skim milk powder at 2,215 and anhydrous milk fat at 700.

In the calendar year to date, interest in skim milk powder has rocketed away, with 4,466 lots traded between January and July this year compared to 473 in 2012. However, whole milk powder trades sank to 6,141 in the year to date from 10,691 in 2012, and anhydrous milk fat was down to 2,542 from 4,052.

The futures are a binding contract to buy or sell product at a fixed price when at a particular time, and are typically used to help smooth out price volatility.

"There is no doubt that levels of volatility in dairy markets remain high which means demand for viable risk management tools is also high. Growth in participation in the NZX Dairy Futures contracts reflects these market conditions," NZX head of derivatives Kathryn Jaggard said in a statement.

"The trading activity seen in June and July augurs well for the remainder of the year and we expect this activity will be further enhanced when NZX goes to extended trading hours, allowing greater access for traders in Europe and the US," she said.

Global dairy prices have been stretched this year as dry conditions across much of the globe sapped production in the past year. Fonterra Cooperative Group, the world's biggest dairy exporter, will review its forecast payout for the 2014 season, and is expected to raise it due to the high international price.

Almost 50,000 contracts have been traded since the market opened in 2010, with a value of some US$167 million.

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