Milk prices to be protected by agreed contracts in online service

DAIRY farmers will soon be able to protect their milk prices from market volatility by locking their sales into an online futures trading service.

The new dairy hedging service, Liffe’s Dairy Skim Milk Powder Futures facility, will operate as pre-agreed contracts, rather than depending on the price dictated by market fluctuation.

It will take a similar form to the contacts already available to feed wheat and milling wheat producers. The new dairy hedging service will be provided by in Ireland by Delta Index.

John Kelly of Delta Agritrading said: “For the first time, dairy farmers and processors will be able to hedge the value of their milk by trading LIFFE Skim Milk Futures on the Delta Index online system. Having this option means that dairy farmers can protect themselves against the volatility in milk prices.

“We can trade anything from 24 tonnes upwards, and the client only needs to have a small proportion of the value of the SMP traded deposited in their Delta Index account. Clients will receive one-to-one training at account set-up and telephone support thereafter.”

The Liffe exchange has a long relationship with wheat farmers. This year, it added a malting barley contract to the exchange.

These contracts are commonly used by the grain industry to set future prices and manage the risk of volatility in the spot price.

To date, this ability has been absent for the dairy sector where milk producers and processors were exposed to the full force of market volatility with few options to dampen the effects of the swings in spot prices.

In May 2010, Delta Index successfully launched a similar facility for the cereals sector using the LIffe and MATIF cereals contracts.

Delta Index is an Irish share and commodity trading company based in Dublin which trades in over 1,600 markets.