The development of the world's first global dairy futures market could cement NZ's position as an industry leader, NZX says, but there are doubts that farmers will have the financial sophistication to use it reports The NZ Herald. Sharemarket operator NZX is designing the futures platform to help world dairying players manage their risk in increasingly volatile markets. NZX head of traded products Fiona Mackenzie says dairy commodities are unique in that unlike cocoa, wheat, sugar or coffee, they do not have a futures mechanism to help protect players exposed to price movements. Because dairy prices have historically not been particularly volatile, there hasn't been a push to start a futures market. However, the ANZ Commodity Price Index for dairy products more than doubled between August 2006 and November 2007, before dropping 58.4 per cent by February this year. The Chicago Mercantile Exchange offers skim milk powder and liquid milk futures contracts but Mackenzie said neither helped management of global price risk. NZX plans a suite of dairy derivatives, the first being whole milk powder (WMP) contracts. New Zealand, through dairy giant Fonterra, is a 30% player in the global WMP market. The new derivatives platform, expected to start in November, is a "pretty sizeable" capital investment for NZX, Mackenzie said. She was excited about its potential contribution to the economy, noting Chicago's booming growth in jobs and financial infrastructure and industry after the "gateway to the mid-west" became the agricultural futures capital of North America. The platform would also "further cement our dairy industry as a global price setter", she said. "Clearly we dominate in the dairy industry, but those sorts of advantages won't continue forever unless you cement and reinforce that position of strength." Fonterra had been consulted by NZX and was supportive of the futures trading concept, but had yet to see details, said head of global trade Kelvin Wickham. Fonterra Shareholder Council chairman Blue Read said many farmers would not have the "financial sophistication" to be interested in futures although an increasing number of corporate farms could be.
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