Futures market casts more doubt on on-line auction
June 15th, 2009
Fed Farmers is welcoming consultation by NZX to create a NZ futures market but says it cannot co-exist with the on line whole milk powder auction. Dairy chairman, Lachlan McKenzie, says “while most countries have a stock exchange, there are only about 23 major commodities exchanges with a specific agricultural focus. Many will have heard of the Chicago Board of Trade, but the Malaysia Derivatives Exchange, or MDEX, is probably a better model.”
He says the prospect of a futures market raises further questions about Fonterra’s GlobalDairyTrade. “We remain very concerned with GlobalDairyTrade. Globally, soft commodities like palm oil, soy and coffee, have bounced back after last year’s price rout. Yet in May, WMP started declining again and well before US dairy subsidies were announced.”
McKenzie warns unless GlobalDairyTrade is stopped, a futures market may be the only way to manage this significant risk to farmers’ incomes posed by this type of market. “Fed Farmers knows there were attempts to create a wool futures market in the 1980s and 1990s. That market collapsed due to a lack of volume. The same thing seems to have afflicted recent attempts to create a futures market based on equities.”
Futures markets, if they are done well, create price certainty by way of hedging risk according to McKenzie. “Past experience tells us of the need to have a broad range of commodities to create market depth as well as volume.” He believes such a market is tailor made for NZ as the country is the world’s largest exporter of sheep meat as well as being the second largest dairy exporter in the world. “We think there’s ample scope to look at a number of other tradable commodities.”
Copyright © The Main Report Group - NZ AGri-Business
