February 24, 2015 / 5:15 PM / 4 years ago

Dairy futures on agenda as EU poised to end milk quotas

BIRMINGHAM, England, Feb 24 (Reuters) - The abolition of milk quotas in the European Union at the end of March has led to renewed interest in risk management tools such as futures to help manage increasingly volatile dairy prices.

“We have futures in other agricultural products. It is something which I think is a good idea to extend to the dairy market,” UK farming and environment minister Liz Truss told reporters on Tuesday.

Dairy prices in Europe have fallen sharply in recent months due partly to a supply glut caused by rising production and Russia’s ban on imports from the EU.

This was imposed in retaliation for Western economic sanctions over Moscow’s involvement in the Ukraine crisis.

Germany’s Eurex exchange quotes butter, skimmed milk powder and whey powder derivatives, but traded volumes are thin.

“A futures market has been discussed for many years and there have been some attempts, mainly by Eurex,” Thomas Carstensen of dairy co-operative Arla said at the National Farmers Union’s annual conference.

“The problem with them all is they are basically based on a commodity index and it is not really reliable and they are not liquid,” he added.

Carstensen, Arla’s Senior Vice President for Global Category Trading, said he believed there would eventually be a successful European dairy futures market but he had no idea when.

EU farm commissioner Phil Hogan said he would welcome any proposal which would manage volatility in the marketplace.

“We’ve looked already at various proposals which have already been put to me in relation to price volatility in milk and we’re working on seeing what menu will provide us with an opportunity in the future,” he said.

European exchanges operator Euronext has said it will launch a range of European dairy futures at the end of the first quarter to coincide with the lifting of quotas.

Euronext had previously launched an EU skimmed milk powder contract in 2010 but suspended it due to a lack of liquidity.

Futures markets run by exchanges such as CME Group have long played an important role in managing risk for arable farmers but have been less successful in the dairy sector.

CME Group’s U.S.-based milk futures contract traded around 30,000 lots in the whole of January, compared with around 5.5 million for its U.S. corn futures contract, exchange data shows. (Editing by David Evans)

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