Plans are under way to introduce the first UK futures market for dairy products in 2010 to reduce price volatility in the sector.
Trading company NYSE Liffe is in advanced talks with the industry, it was revealed at this week's Dairy UK conference.
Although precise details have yet to be finalised, the market would cover SMP, butter and whey powder. It would help reduce market volatility by allowing companies to manage price risk more effectively, said NYSE Liffe director Ian Dudden.
However, it would take time, he added. "These contracts can take years to be fully understood and embraced by potential users."
Sellers on the market would probably be well-established companies with limited experience of futures, while buyers would be experienced food manufacturers such as Nestlé, Cadbury and Kraft, he said.
The plan would also help farmers gain an understanding of where the market was likely to be in the future, said Andrew Larkham, a commodity analyst at Mintec. "Anything that could help reduce volatility would be an improvement even if prices are going down, farmers can produce more or exit the market. It'll give them an idea of the long-term picture."
SMP prices in the UK had oscillated, while those in the US which already has a dairy futures market had moved more gently, he added. However, lessons needed to be learned from the US, where commodity funds had taken advantage of volatility and used the futures market as a source of income, he warned.
Meanwhile, the EC is also understood to be considering a European dairy futures market.
Trading company NYSE Liffe is in advanced talks with the industry, it was revealed at this week's Dairy UK conference.
Although precise details have yet to be finalised, the market would cover SMP, butter and whey powder. It would help reduce market volatility by allowing companies to manage price risk more effectively, said NYSE Liffe director Ian Dudden.
However, it would take time, he added. "These contracts can take years to be fully understood and embraced by potential users."
Sellers on the market would probably be well-established companies with limited experience of futures, while buyers would be experienced food manufacturers such as Nestlé, Cadbury and Kraft, he said.
The plan would also help farmers gain an understanding of where the market was likely to be in the future, said Andrew Larkham, a commodity analyst at Mintec. "Anything that could help reduce volatility would be an improvement even if prices are going down, farmers can produce more or exit the market. It'll give them an idea of the long-term picture."
SMP prices in the UK had oscillated, while those in the US which already has a dairy futures market had moved more gently, he added. However, lessons needed to be learned from the US, where commodity funds had taken advantage of volatility and used the futures market as a source of income, he warned.
Meanwhile, the EC is also understood to be considering a European dairy futures market.
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