Irish dairy sector looks to revamped derivatives

Euronext is launching a revamped dairy derivatives, betting that the end of the EU’s milk quota system will stir price hedging interest in a sector that has so far shunned futures markets.

The exchange is replacing a failed skimmed milk powder contract with a wider offering of butter, skimmed milk powder, and whey powder futures. It is focusing on the northern EU expected to drive higher post-quota dairy exports.

“The crux of the interest is Dutch, German, Danish, and Irish; the core of the EU dairy export machine,” Olivier Raevel, Euronext head of commodities, told the Thomson Reuters online Global Ags Forum.

Euronext hopes to emulate the expansion of its wheat and rapeseed futures, which have grown in recent years into recognised price benchmarks for the European market.

The abolition of the EU’s 30-year-old milk quotas has excited producers in countries such as Germany and Ireland keen to tap into rising world demand.

“We welcome the start [of Euronext’s futures],” said Michael Lohse, of German farmers’ association DBV. “For dairies and dairy farmers, it is one of the possibilities to secure their prices somewhat in the new market environment.”

Euronext still faces the task of developing liquidity in an EU market known for local pricing. A downturn last year, fuelled by a Russian embargo, has also heightened some farmers’ misgivings about liberalisation.

“Currently, there is no pan-European dairy price benchmark,” said Pierre Begoc, international director at consultancy Agritel, one of Euronext’s partners in the developing the new derivatives.