John Lothian News has learned Euronext will take another shot at developing a vibrant dairy derivatives complex as a deadline looms in the European Union to remove milk quotas in the European market.

Euronext will introduce futures on butter, skimmed milk powder and whey powder in the spring of 2015.  With the European market the world leader in dairy production and producers facing new volatility once the quotas are dropped, the timing is right for Euronext to take another shot at developing a dairy complex.  The European Union milk production quotas are expected to expire at the end of March.


Brian Rice of Rice Dairy.

Eurex has cash settled dairy products which have attracted some participation, with open interest near 5000 contracts, according to Brian Rice of Rice Dairy.  Euronext previously introduced physically delivered dairy products in 2010, but struggled to attract the necessary liquidity to keep the contracts listed.

Europe also had another milk market which failed to attract enough participation, the European Milk Exchange, a start up which did not make it.

However, Rice says now the environment is different with volatility in pricing due to take effect once the supply quotas are dropped in the European Union.

The European regulatory regime is 15 years behind the U.S., he said, noting the U.S. deregulated pricing back in 2000 and that CME Group has built a successful dairy complex approaching 4000 average daily volume and with 220,000 in open interest.

“We will see the European dairy industry adopt hedging practices like they have in the U.S.,” Rice said.  “The value chain is so diverse,” Rice said, “dairy is the largest food commodity on earth.”





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