Futures market EEX hints at long-term high dairy price

The above is precisely the period for which most contracts have now been or are being concluded. Although it didn't look like that until about a month ago. From then on, the futures quotation for butter shot up, closely followed - but more calmly - by the other dairy futures quotations. It was the start of a series of unprecedented price increases in solid dairy products, driven by fears of shortages.

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The futures market quotation for butter for August was last week just below the peak of €6.900 per tonne, as quoted for July.

Perhaps the milk supply will increase considerably in the coming months. This will then have a depressing effect on futures market prices, but due to higher energy costs and shortages in animal feed raw materials, it does not seem very likely that a lot of extra milk will arrive this year.

Speculative element
In retrospect, the futures market quotes for butter and skimmed milk powder on the EEX seem to be a good indicator of what will happen, but the futures market also has a significant speculative element. Security of supply is purchased, no guarantee of the correct price at the time of settlement.

The futures market for skimmed milk powder has risen sharply in recent months.
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Forward prices for skimmed milk powder also skyrocketed, but slightly less than for butter.

Not only the level of the contract prices provides an indication. The number of traded contacts also tells us something about the market situation. With today's high prices, an increasing number of parties feel the need to limit the risks and ensure that products can be delivered in the future. That is why 45% more futures contracts for butter, milk and whey powder were concluded in February than in the same month last year. Even though the quotation did not rise as fast as in March: it involved 3.151 contracts in February 2022, compared to 2.169 contracts a year earlier.

Small player?
Compared to, for example, the futures exchanges of the Cbot in Chicago en the NZX in New Zealand, the EEX in Leipzig is a small player with these numbers, but the fair is nevertheless an important indicator for the European dairy market. This may not be immediately apparent from trading on the platform, but behind it there is also a large volume of so-called OTC trading (over the counter) via various brokers. The EEX is aware of this, but cannot indicate the trading volume involved.

The EEX itself is especially influential with butter and skimmed milk powder. These are and will remain the most important and liquid products. Attempts to expand the contract range to include whey powder and raw milk have had limited success so far. Trading in whey powder futures contracts is going smoothly, and nothing is actually happening on the raw milk futures market. What is nice of the EEX is that they have a 'final settlement price' for raw milk has established.

Indicative price for cheeses
The EEX has also been spreading for a few weeks now an indicative price for four different types of cheese. The stock exchange indicates that it mainly wants to bring additional transparency to the dairy market. It is not yet clear whether it is also intended as a setup for another series of futures market quotations.

What is clear is that the EEX has made and continues to make numerous attempts to gain more substance in the dairy market. It closed earlier this year for that reason a cooperation agreement with Fonterra's NZX and GDT auction.