NZX plans dairy futures; Fonterra welcomes move

Thursday 4th June 2009

NZX, manager of New Zealand’s stock exchange, will tap the dairy sector for its opinions on its plans to launch a whole milk powder futures contract in coming weeks, which it says will “complement” Fonterra’s online auction of milk powder.

The exchange company plans to open a new clearing house on Nov. 20 to bolster the risk profile of NZX Markets and broaden the range of products available. The milk powder contract will provide an accurate hedge for the ingredient and help with price discovery, sitting alongside Fonterra’s GlobalDairyTrade online sales platform.

“The futures will give the opportunity to hedge the position and the facility to find prices” for milk powder, said NZXsales manager Kathryn Jaggard. “It will complement” GlobalDairy Trade and help those in the dairy traded to protect against volatile world prices for dairy products, she said.

NZX chief executive Mark Weldon has said the agricultural sector is a key opportunity for growth, as it includes companies of global scale like Fonterra. While the nation’s exports are dominated by dairy, meat and wool, much of those industries is tied up in cooperative structures while the nation’s capital markets, amounting to about a third of gross domestic product, are relatively puny.

The exchange has widened its exposure to the primary sector, acquiring media and data companies that track agriculture in New Zealand and Australia. Fonterra chairman Henry van der Heyden is a director of NZX and the cooperative is pondering ways to overhaul its capital structure.

“The development of price risk management tools to help moderate the impact of dairy commodity risk in these volatile times would be useful,” said Kelvin Wickham, Fonterra’s managing director of global trade. “We would be happy to engage in the consultation process NZX have suggested.”

The NZX’s head of traded products, Fiona Mackenzie, said volatility in the dairy market has driven demand for “a risk management tool similar to those available in other commodity markets.”

The price of milk powder slumped 12% on Fonterra’s latest online auction, extending its 4% decline last month, and snapping back the two monthly gains it enjoyed in March and April. The world’s largest exporter of dairy products announced an opening forecast payment for the 2010 season of NZ$4.55 per kilogram of milk solids, a 13% decline from this season’s $5.20 per kilogram.

The company blamed the soaring dollar for the lower estimate, which jumped about one-third from its sub-50 U.S. cents low in March.

The cooperative has its own plans to expand its online auction system, with a goal to become the premier market for global dairy product trading.

GlobalDairyTrade is managed by Boston-based CRA International, which last month rolled out a similar system for Ocean Spray, North America’s biggest juice company, to trade fruit concentrates.

Businesswire.co.nz

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