Capital Markets: Milk price contracts to launch this month

Once the futures and options contracts are available for trading on NZX's dairy derivatives market, all users of these contracts will be required to trade through an NZX Derivatives Participant. Photo / Dave Murdoch

The milk price futures contracts will be launched on May 27, the NZX announced late last week.

An announcement of the related milk price options contracts will be made in June.

These contracts are designed to address growing demand from producers and purchasers of milk products wishing to manage risk relating to price fluctuations, said NZX. For example, both contracts can help New Zealand dairy farmers mitigate the financial risks associated with a variable milk price.

NZX Head of Markets Mark Peterson said: "We are committed to building markets for the long term, and the launch of milk price futures and options contracts is no exception. We will continue to focus our efforts on growing market participation and trading activity, and educating interested parties on the benefits of commodity risk management tools.

"As expected with new derivatives products, we expect that liquidity in the market will build slowly at first," he said.

"With 95 per cent of their product sold overseas, New Zealand dairy farmers are highly exposed to the global dairy market.

"The new futures and options contracts will help to level the playing field with their overseas counterparts in the US or Europe, who have access to a wide range of risk management tools."

Once the futures and options contracts are available for trading on NZX's dairy derivatives market, all users of these contracts will be required to trade through an NZX Derivatives Participant (a broker).

Derivatives contracts carry risk and operate differently to fixed price schemes offered by milk processors. NZX encouraged parties wanting to enter into these contracts to seek advice from an authorised financial adviser as to whether derivatives contracts are appropriate for their individual circumstances.