NOW is the time for the dairy industry to consider hedging prices.
That's the opinion of New Zealand Stock Exchange head of derivatives Kathryn Jaggard.
Ms Jaggard said market volatility was the basis for demand for futures products.
"If there was ever a time that farmers wanted to use a product to lock in part of their price of their milk produced, now would be it," she said.
The NZX plans to launch the whole milk dairy futures contract in September, subject to regulatory approval.
Previously it had flagged June as a start date for WMP and then September for skim milk and anhydrous milk fat futures.
Earlier this year Chicago-based derivatives trading group CME Group International launched trading in skimmed milk powder derivative contracts, however there has been little activity.
Nevertheless, Ms Jaggard remains confident of demand for the NZX launch.
She said the NZX futures market would be cash-settled, a more attractive option for those initially becoming involved in futures, compared to the physical delivery of the CME Group SMP contract.
The NZX model also offers contracts of one tonne, which Ms Jaggard said lowered the risk level because the initial payment to trade was smaller than it would be on a larger offering.
Meanwhile, the Australian dairy industry will soon have an opportunity to learn the ropes of the global dairy risk-management industry.
Commodity risk management firm FCStone Australia will hold a workshop next Friday, July 30, in Melbourne, looking at hedging tools such as futures or options and how they apply to the dairy industry.
FCStone Australia senior advisory manager Ole Houe said he expected processors to embrace the hedging tools before dairy farmers did.
He estimated it would be 18-24 months before dairy farmers became confident with the system and began using it as a way to lock in higher prices for their product.
- For more information about the workshop, phone Holt Hardy at FCStone Australia on (02) 8094 2009 or email holt.hardy@fcstone.com
