Friday, July 1, 2022

Jump in demand for SMP Futures

Futures contracts for skim milk powder (SMP) traded at record levels on the NZX Dairy Futures market during the month of June.  

More than 1200, one tonne SMP Futures contracts were traded in the month of June 2013.  Last month demand for SMP Futures were well in excess of the demand for whole milk powder (WMP) futures and anhydrous milkfat futures which are also offered by NZX.  

Demand for SMP Futures has been relatively limited since the product was launched in February 2011.  Most of the trading to date has been in WMP Futures.  New Zealand dominates world trade of WMP so it is not surprising there has been strong demand for the NZX WMP Futures.   

NZ is one of the largest suppliers of SMP to global markets but it certainly doesn't dominate global supply in the manner which it does for WMP.  NZ, Australia, the United States and the European Union have traditionally supplied most of the globallly traded SMP.  The US has increased its presence in the global markets significantly in recent years.  And this year we have also seen India supplying quite a lot of SMP into the global markets.  

The NZX SMP Futures market is cash settled based on prices achieved for sales of physical product on the GlobalDairyTrade (GDT) auction.  More specifically the price is based on the average price across two auctions for Contract 2 Medium Heat SMP supplied by Fonterra.  

A number of dairy companies are currently selling or plan to sell SMP via GDT.  Aside from Fonterra sellers of SMP include: Dairy America (US), Arla (Europe), Amul (India).  In addition, Euroserum (Europe) announced last week they will commence offering SMP for sale on GDT from November 2013. The inclusion of the additional sellers on the GDT market helps bring price transparency to the market.  

The NZX SMP Futures contracts are currently displaying a downward sloping forward price curve.  That is contracts in the nearby delivery periods are trading at higher prices than those in the later delivery periods.  The June 2013 SMP Futures is currently priced at US$4,500 while the December 2013 contract is currently priced at US$3895.  

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