NZX Dairy Derivatives

SGX-NZX’s Dairy Derivatives Market provides the dairy industry with a forward view of dairy prices and a cash settled instrument for managing price risk simply and efficiently. This market provides tools which participants can use to mitigate the risks associated with movements in the price of dairy products.

Participants in the international dairy markets are exposed to a high degree of price volatility. The New Zealand dairy farmer is at the forefront of this volatility transformation as 95% of milk is exported and farmers are exposed to the ups and downs of the global market. Both producers and purchasers of milk products are increasingly seeking ways to create certainty around the price they receive or pay for product.

SGX-NZX offers futures and options contracts for all levels of market participants from New Zealand farmers through to the international buyer of dairy commodities.

Whole milk powder (WMP) is the main dairy commodity produced in New Zealand and New Zealand is the largest supplier of WMP to the international market. Other important commodities produced in New Zealand include Skim Milk Powder (SMP), Anhydrous Milk Fat (AMF), and Butter (BTR) for which futures and Global SMP Option contracts are available.

The price New Zealand dairy farmers are paid for the milk they supply to dairy processors is directly linked to international dairy markets. The NZ Milk Price calculator explains this relationship. SGX-NZX NZ Milk Price Futures and Options contracts can help farmers to mitigate the risks associated with milk price variability. Price volatility creates risk for all market participants. This volatility is expected to continue, driving demand for a set of risk management tools that offer dairy participants globally the opportunity to create price certainty.

Market History

NZX launched the Global Dairy Futures and Options market in 2010 to help provide a useful tool for farmers, producers, and manufacturers, among others for the management of price risk inherent to the global dairy industry. Since the launch of Whole Milk Powder (WMP) futures contracts, NZX has continued to expand its product offering with the introduction of Skim Milk Powder (SMP) and Anhydrous Milk Fat (AMF) futures contracts in February 2011, WMP options in November 2011 and Butter (BTR) futures in December 2014. In 2016 NZX extended its product offering with the launch of NZ Milk Price (MKP) futures and options contracts.

On 3 February 2014 NZX Dairy Futures market was granted registration as a Foreign Board of Trade by US regulatory agency the Commodity Futures Trading Commission (CFTC) under the US Commodity Exchange Act. This allows NZX to permit direct access in the US to trade on the NZX market.

On 8 April, NZX and SGX sealed a strategic partnership agreement to unlock and accelerate the distribution and growth potential of NZX’s dairy derivatives market. This follows a Heads of Agreement that was mutually signed in October 2020 to explore the listing of NZX’s Global Dairy Derivatives contracts on SGX’s trading and clearing platform. This partnership brings together the complementary capabilities of the NZX and SGX to scale up market distribution and liquidity in the global dairy derivatives markets.

As part of the new partnership, in November 2021 NZX delisted its suite of dairy derivatives contracts from the NZX Derivatives Market and equivalent contracts were listed on SGX with exclusive trading of these contracts on SGX from 29 November 2021.

NZX continues to provide dairy product development expertise, market research and product support for new developments and enhancements of the market as well as lead engagements with the dairy industry. SGX offers global market connectivity, a strong Asian presence and international distribution to more than 70 Trading and Clearing member firms. Under the partnership functions SGX operates include trading, clearing, regulation, operations, risk management and distribution of real-time and historical trade data.

Market Highlights

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