'Instability' in dairy prices allow dairy futures, at last,
to take off in the Europe Union, Commerzbank, said, as Euronext waits for traction
in its revamped products.
The dairy industry in the EU - the world's top milk
producer, and second biggest exporter - is marked by a lack of commonly-used
futures contracts, meaning agreed price benchmark on which to base supply
However, the increasing volatility in dairy prices, which
halved last year at New Zealand-based GlobalDairyTrade auctions, may spur
growing interest in hedging in the bloc, Commerzbank said.
Many observers believe that Europe's dairy industry, which
has surprised many observers with its lack of appetite for dairy derivatives
despite its global importance, may be spurred to adopt futures thanks to the
lifting of production quotas.
The removal of restraint on output may leave the sector more
vulnerable to the price-led cycle of higher and lower milk production growth
evident in the world market, some commentators say.
While bodies such as the OECD and European Commission have
forecast gentle rises in dairy output ahead, "the smooth forecast development
should not detract from the fact that we will continue to see significant
deviations from the path," Commerzbank said.
"Price instability will thus remain a relevant topic,"
creating demand for tools to hedge forward.
"Over the next few years, the importance of the dairy
futures exchanges as a hedge against elevated price risks… should thus
New Euronext products
The comments come a month after European cash and derivative
exchange Euronext launched revamped dairy futures, in butter, skimmed milk
powder and whey powder, in units of 6 tonnes.
The derivatives - which replace a milk powder contract in
which Commerzbank said "no noteworthy trading took place" - were designed to
tap interest largely from key European exporting countries such as the
Netherlands, Germany, Denmark and Ireland.
Nonetheless, open interest – the number of live contracts –
was zero in all three products on Wednesday afternoon, according to Euronext
Trading in dairy products at Frankfurt-based Eurex is also
"low", Commerzbank said.
US exchange sees
interest gain pace
However, a poor take-up of dairy futures in Chicago-based
CME "was also the case at first", the bank said.
There, "trade in dairy product contracts has gained pace in
recent years", with cheese and dry milk contracts growing in popularly particularly
over the past year.
On May 12 open interest in non-fat dry milk futures and
derivatives on the CME exchange was 11,972, while cash-settled butter futures and
derivatives had a combined open interest of 11,812.
Europe may see a similar development dynamic, Commerzbank