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Double dent to NZX from dairy market downturn

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NZX revealed a double-dent to its takings from the milk market downturn, with an acceleration in the decline in volumes of both dairy derivatives trading and ag magazine advertisements.

The exchange operator reported a 20% tumble, to 62,742 contracts, in the January-to-June half in trading volumes in its dairy derivatives portfolio, which include the whole milk powder futures closely watched by many traders as a benchmark for Oceania dairy export prices.

Stripping out data for the January-to-March quarter, when volumes dropped by 8.6%, implies a slump of some 30% year on year, to 29,145 contracts, in volumes for the April-to-June period.

Open interest, that is the number of live derivatives contracts, also deteriorated markedly, to 23,833 lots, a drop of 27% year on year.

'Less incentive to hedge'

NZX blamed the slide on dairy prices which have remained depressed, and relatively stable, thanks to the extent of world supplies, boosted by relatively buoyant output – particularly in the European Union, after the removal of production quotas – at a time of tepid demand from major importers.

"Reduced volatility in underlying commodity prices resulted in less incentive to hedge for the time being," the group said.

The dairy downturn has been particularly hard felt in New Zealand, the world's top milk exporting country, provoking a drop of 14.4% in advertising page sales in the half year at NZX's agri division, which publishes titles including New Zealand Dairy Exporter and New Zealand Farmers Weekly.

The data again implied a steeper reduction in the April-to-June quarter than in the first three months of the year, when volumes dropped by 8.8%.

The agri division "continued to be impacted by the difficult environment in New Zealand's dairy industry.

"This has resulted in advertising spend being down across the sector."

'Surpassing expectations'

However, the group flagged a "pleasing" start for its New Zealand milk futures and options contracts, with volumes since the products were launched in May "surpassing expectations for a new derivatives contract".

The derivatives are designed to allow producers and processors to set values ahead for raw milk, following the withdrawal last year by Fonterra, New Zealand's top dairy group, of its own fixed-price scheme.

NZX also noted a 61% jump to 389,376 tonnes in half-year volumes traded at its Australian grains market, Clear Grain Exchange, signalling an acceleration in growth in the latest quarter, after a 43% rise to 213,943 tonnes in the January-to-March period.

The group flagged a "longer selling season in a lower price environment".

'Exceptional growth'

NZX also flagged improving metrics in some of its core capital markets operations, with NZ$840m of new equity capital listed during the January-to-June period, a rise of 438% year on year, and a further NZ$3.2bn of debt.

"The exceptional growth in the listed debt market continued," the group said.

NZX shares closed up 2.0% at NZ$1.02.

By Mike Verdin

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