Interview Edwin Burgers
'Future market is something for every dairy farmer'
The European Energy Exchange (EEX) launches the futures market for raw milk on Wednesday 15 August. It gives dairy farmers the opportunity to change from a price taker to a price setter. Is it something for every dairy farmer? Edwin Burgers, director of DCA Finance BV, talks about the new futures market.
Why is a raw milk futures market being launched?
"In recent years, prices in the dairy market have started to move more and the price movements have also increased. This is due to the growing influence of the world market on European pricing. As a result, producers have a need to manage risks The futures market is a way to manage the price risk; the price can be fixed for part of the product. skimmed milk powder and butter this was already possible indirectly, but this has not really caught on among livestock farmers. It turned out to be a 'far-from-my-bed' show for the livestock farmer. The raw milk contract should make the futures market more accessible."
What will happen after the kick-off of the futures market?
"The futures market will start on August 15. Then you enter a pilot phase. It will probably take quite some time before dairy farmers structurally trade on the futures market. The first challenge is to increase awareness. They have probably heard of it before, for example via colleagues in arable farming (who have been working with a futures market for much longer) or because colleagues do something with feed on the futures market. Nevertheless, most dairy farmers have limited knowledge of the futures market."
How can a livestock farmer increase his knowledge about risk management?
"It's similar to learning to swim. You don't get thrown in at the deep end, but it starts small. Learn how the markets work and take courses about the futures market (DCA also facilitates this). In addition, it is important that processors and cooperatives use it. to make it; it takes a certain volume to make the market liquid. The need to make this a success is greater than in the past. The market has evolved and uncertainties have been added. The futures market is part of the spectrum of the modern livestock farmer."
Who is the raw milk futures market for?
"For every dairy farmer. It's not about whether there are 100 or 600 cows on the farm. It's about trying it once. As long as you've never worked with it, you don't know if it suits you. one entrepreneur is better at dealing with the tension than another, but it is wise to delve into it."
How important is it to the industry?
"In the future, it may also have a positive effect on the financier. I know (because DCA Finance has been active on the potato futures market for many years) that the farmer who is active on the futures market has a better financial return. company (barn, feed, labour, cows, etc.) influence, but not on the milk price. He is a price taker and not a price setter. It is also not inconceivable that processors will offer click contracts in the future. It will be a challenge for processors to and/or to facilitate suppliers."
How can you, as a dairy farmer, become active in the futures market?
"To trade on the futures market, you need a special account. It cannot be opened through a regular bank. You can access the EEX in Leipzig through an intermediary (such as DCA Finance), which is supervised by the Netherlands Authority for the Financial Markets ( AFM) and De Nederlandsche Bank (DNB). The complicated part of the new contract is the delivery month and the Cash Settlement. A dairy farmer continues to supply his milk to his own customer. The farmer simply receives his milk money from the customer."
"At the same time, he can cover his milk price for September, for example because he expects the price to fall. The settlement takes place in November and that is also the name of the contract: 'the November contract'. The milk for October comes under 'the December contract'. ', etc. It is not uncommon for dairy farmers that there is a period between the delivery of the milk and its payment. The return (obtained on the futures market) can then be seen as a supplementary payment. The other side is that there is ( if the market price turns out to be higher than expected) additional payment must be made on the futures market position."
What is the most important advice for trading the futures market?
"Two things are important when trading the futures market: think in advance what an acceptable milk price is and ensure that there are sufficient liquid assets to be able to pre-finance. Keeping a futures market position requires liquidity (also called margin). The latter is necessary, because the futures market can also work against the expected and then money has to be added. Ultimately, the futures market serves as a kind of insurance (if the dairy market and with it the payout price falls) and not as a means to make more profit."
Herman van den Pol
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