Europe's first futures market for dairy products is set for a September launch, the trading company behind it has announced.
Developer NYSE Euronext hopes the trading platform, designed to iron out price volatility, will go live in September. It will offer SMP derivatives (futures) and the unit of trading will be 24 tonnes per single contract of powder of EU origin.
There will also be an option for physical delivery of the product within 150km of Antwerp, Hamburg or Rotterdam. However, Euronext claims most traders will "close out" their futures trades before the delivery date, meaning physical delivery never occurs. Only 1% to 2% of all futures contracts result in actual delivery. "The fact there is a delivery option ensures convergence between the futures and physical market prices," said Peter Blogg, head of product management at NYSE Euronext. The Grocer revealed in September 2009 that the concept was under consideration for whey, SMP and butter.
UK dairy companies have greeted the news with a degree of caution, claiming that UK powder producers would be too nervous about the perceived risks of futures trading to engage in the market in the short term. Recent activity on the cocoa market may not appease these concerns last week a trader purchased 241,000 tonnes of cocoa, worth £658m, and equivalent to the entire supply of the commodity in Europe. The actions were enough to send the price of cocoa to its highest level since 1977.
However, Euronext expects the big powder manufacturers and large-scale buyers of milk powder, such as Cadbury and Nestlé, to trade on it, rather than speculators. "We think 80% of the customer base will be processors, co-ops and companies involved in the physical aspect of the commodity," said Blogg.
They would be able to use the futures market to mitigate price risk in their purchasing strategies whereas speculators would prefer high-volume markets such as oil.
Developer NYSE Euronext hopes the trading platform, designed to iron out price volatility, will go live in September. It will offer SMP derivatives (futures) and the unit of trading will be 24 tonnes per single contract of powder of EU origin.
There will also be an option for physical delivery of the product within 150km of Antwerp, Hamburg or Rotterdam. However, Euronext claims most traders will "close out" their futures trades before the delivery date, meaning physical delivery never occurs. Only 1% to 2% of all futures contracts result in actual delivery. "The fact there is a delivery option ensures convergence between the futures and physical market prices," said Peter Blogg, head of product management at NYSE Euronext. The Grocer revealed in September 2009 that the concept was under consideration for whey, SMP and butter.
UK dairy companies have greeted the news with a degree of caution, claiming that UK powder producers would be too nervous about the perceived risks of futures trading to engage in the market in the short term. Recent activity on the cocoa market may not appease these concerns last week a trader purchased 241,000 tonnes of cocoa, worth £658m, and equivalent to the entire supply of the commodity in Europe. The actions were enough to send the price of cocoa to its highest level since 1977.
However, Euronext expects the big powder manufacturers and large-scale buyers of milk powder, such as Cadbury and Nestlé, to trade on it, rather than speculators. "We think 80% of the customer base will be processors, co-ops and companies involved in the physical aspect of the commodity," said Blogg.
They would be able to use the futures market to mitigate price risk in their purchasing strategies whereas speculators would prefer high-volume markets such as oil.
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