Thursday, July 7, 2022

Big demand for SMP Futures

Skim milk powder (SMP) Futures was the hot item trading on the NZX Dairy Futures market on Thursday.  

775 lots of SMP Futures traded before lunch time on the NZX Dairy Futures market and by the end of the day this number increased to more than 900 lots.  The trades were concentrated in the September, October, November and December 2013 monthly contracts, indicating there is strong demand for price certainty during the later part of this year.  Market prices are currently declining for most dairy products including SMP but this trend is expected to reverse at some point soon.  Market fundamentals indicate that the current downwards price trend will not last forever, but there remains a lot of uncertainty about when the downwards price correction will end.  

"The fact that NZX Dairy Futures sees volume of this size being easily traded is a sign of real liquidity and confidence in this market"

Kathryn Jaggard, Head of the NZX Derivatives Market, says "there has been significant interest in the NZX SMP Futures contracts in recent months from participants in all of the main dairy exporting regions".  Europe and the United States (US) as well as Oceania export significant quantities of SMP, and buyers of SMP are spread across the world, therefore the market for SMP is truely a global market.  "The fact that NZX Dairy Futures sees volume of this size being easily traded is a sign of real liquidity and confidence in this market." says Jaggard.  


The SMP Futures September and October, contracts last traded at US$3990 and US$3800 respectively, while the November and December contracts were both prices a little lower at US$3725.  The final settlement price for these NZX Dairy Futures contracts will be based on the average price of Fonterra's Medium Heat SMP Contract 2 sold during the two GlobalDairyTrade (GDT) auctions that occur within the respective calendar month. 

At the latest GDT auction Fonterra's Medium Heat SMP was priced at US$4,350, US$4,260 and US$4,280/tonne for September, October and November deliveries.  There is currently a spread of prices for SMP across the globe.  SMP from New Zealand is typically priced above other regions due to the shortage of available product associated with the recent drought.  In Europe this week the Official Dutch Quotations for food grade SMP was €3100 which equates to approximately US$4140/tonne.  Therefore the prices currently on offer on the NZX Dairy Futures market may well be seen as an attractive option for European buyers.  



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