OMF New Zealand Dairy Futures report – October 17, 2013
The GDT arbitrage on Dairy; too big to ignore
The present arbitrage in WMP and SMP is too big to ignore for GDT buyers. The differential between February 2014 Futures and C6 on SMP & WMP is over $550 per tonne; that’s over a 10% differential. This is an easy arbitrage to take advantage of and it would also be considered easier to buy February futures in size as opposed to C6 – which can be thin.
Let’s run through an example using February WMP
Today – buy February WMP futures at $4680. You have hedged your buy price at $4680 versus C6 at $5245 – a $565 saving.
In February – buy your WMP requirement on GDT in C2 spread evenly over the two auctions.
In February, when you buy your WMP on GDT (over the two auctions) – you will be (automatically) closing your futures position on that average.
SMP February example
Today – buy February SMP futures at $4400. You have hedged your buy price at $4400 versus C6 at $4980 – a $580 saving.
In February – buy your SMP requirement on GDT in C2 spread evenly over the two auctions.
In February, when you buy your SMP on GDT (over the two auctions) – you will be (automatically) closing your futures position on that average.
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