NZX dairy derivatives come out tops

Last night in Singapore the NZX dairy futures market won best new agricultural contract at the Futures & Options World Awards for Asia.

Whole milk powder options and futures, skim milk powder and anhydrous milk fat futures have traded on the NZX since October 2010.

The market grew strongly the first half of 2014, with volume traded up 311% compared to the same period last year.

The high volumes continued in July and August – volumes rose 140% and 81% respectively on 2013 – with new records set for volume traded in a single month.

This was buoyed by trading hours being extended in August last year, and the US regulatory agency, Commodity Futures Trading Commission, approving direct access of US traders into the New Zealand derivatives market earlier this year.

NZX derivatives head Kathryn Jaggard said in a statement the award was an “exciting development” for the dairy futures team and follows substantial traction in trading in the market, particularly from Europe, the US and Asia.

“The award cements the work we are doing to help grow market participation and confidence and is recognition of those in the dairy industry who continue to support the growth in this market,” she said.

New Zealand is the world’s biggest dairy exporter, selling 99% of its milk production in the form of dairy commodities overseas. Nearly half of all whole milk powder exports come from New Zealand.

But price volatility in the dairy industry has been unprecedented in recent years and this creates market risk. At the start of this month, dairy prices dropped to a low not seen since July 2012.

On Wednesday, Fonterra [NZX: FCG], the world's biggest dairy exporter, slashed its forecast 2015 milk price payout by about 12% to $5.30 per kilogram of milk solids from a previous forecast of $6/kgMS, citing weaker global dairy prices.

The futures market creates a binding contract to buy or sell product at a fixed price when at a particular time, and are typically used to help smooth out price volatility.

Other award winners at the Futures & Options World Awards include the newly-merged Japan Exchange, which took home exchange of the year, and Dubai Gold and Commodities Exchange, which was awarded emerging exchange.