Stock exchange operator NZX Ltd is launching a futures market for trading whole milkpowder -- but says the contracts will be settled only in cash, rather than physical delivery.
The nation's main dairy company, Fonterra, supplies nearly 40 percent of the global whole milkpowder (WMP) market and the exchange said "market volatility" had led to demand for a risk management tool similar to other commodity markets.
"It's a natural fit for New Zealand to host the trading of milk derivative contracts, and to meet the global demand for risk management tools in the dairy industry," said NZX's new head of traded products, Fiona Mackenzie.
Ms Mackenzie has been setting up NZX's Auckland office to oversee a planned suite of new tradable futures and commodities products.
NZX has plans to launch equity options, index futures and dairy commodity derivatives products over the coming year. It has said it will consult farmers and market participants over details of the futures contract, with trading expected to start by the end of the year.
It will open a new clearing house on November 20.
The NZX company has recently bought up rural media assets in Australia and New Zealand, including the Agri-Fax data business and rural media and data assets in Australia and New Zealand. It is buying Country-Wide Publications Ltd which controls NZ Farmers Weekly, Country-Wide North and Country-Wide South, NZ Dairy Exporter, Deer Farmer and Young Country.
Fonterra -- which controls about a third of the world's dairy exports -- plans separately to expand its own online auction system, known as globalDairyTrade, as a platform for international markets. Fonterra said yesterday that its June auction online of WMP saw prices dropping an average of 12 percent, and with slump of more than 14 percent for milkpowder to be delivered in February 2010. The world's largest and most diverse derivatives exchange, Chicago Mercantile Exchange Inc, earlier this year launched deliverable nonfat milkpowder futures and options on those futures, in parallel with existing contracts for cash-settled futures in the same skim-milk commodity.
The contracts are for 44,000 pounds (20 tonnes) of Grade A milk.
These contracts trade 23 hours a day. Some are bought and sold by speculative investors, but others are used by dairy farmers trying to manage the risks posed by uncertain milk prices.