Forward Market Performance (FMP)

Published 11 January 19

EU wholesale markets were mixed in December, with butter prices continuing to fall back and SMP prices rising on the back of unusually strong demand. These two trends balanced each other out, leaving the EU milk equivalent value (EU AMPE) for December virtually unchanged (+0.1%) on November.

On futures markets, settled prices for SMP contracts increased through December, with sentiment potentially improved by unexpectedly strong wholesale demand for SMP and the rapidly declining intervention stocks. Settled prices for butter contracts also rose consistently through the month. This is in contrast to lower pricing on spot markets, suggesting there are expectations for butter prices to improve in the coming months. This could be due to expectations of supplies tightening, if concerns about feed quality and availability following the challenging summer are realised. Based on settled prices for Apr-19 contracts, the average value of milk on the futures market (FMPE) rose by 3.6% in December.

The forward market indicator returned to positivity this month, reflecting an expectation of tighter availability of supplies. The halting decline in EU AMPE follows this sentiment, but how markets fare once the festive season is over will give a clearer indication of the trend.

 FMP Graph

FMP Table

*Forward Market Performance (FMP) is AHDB Dairy’s market indicator which monitors the difference in current market prices and prices traded on futures contracts (see note below). The aim is to provide some indication of what those trading futures believe the supply and demand relationship could be over the coming months. The comparison is between an Actual Milk Price Equivalent (AMPE) price and a Future Milk Price Equivalent (FMPE) price. Both are quoted in Euros to limit exchange rate implications, as there is no Sterling futures prices. FMPE is calculated in the same way as AMPE, but using futures prices from the European Energy Exchange. FMPE is calculated four months in advance of AMPE, as this is generally where most of the trade is completed.

FMP is the relationship between AMPE and FMPE. As mentioned, it is about the traders' views of the potential supply/demand relationship in the future. Therefore, a negative figure indicates that those involved in the futures market during that month feel there could be relatively high supply and the market will become supply focused in the coming months. A positive figure means those trading futures believe supply will become tight, pushing demand and causing the market to become demand focused.

 

FMP does not tell us how much milk prices will change by but, combined with other market commentary, can give an indication of the potential movement, or trends, in prices. It is also important to remember, at present, the amount of product traded through the futures market is small.

Note: 

Futures prices are from the European Energy Exchange (EEX). Futures pricing gives an indication as to where the market may go in the future. They are not set in stone and are subject to change on a regular basis. This webpage will be updated weekly with the first days settled prices (usually Mondays but can be Tuesdays). Trade over the futures market is very slim and therefore these figures should be viewed as one indication of the market movements and not actual developments.

Actual Milk Price Equivalent (AMPE) is a market indicator for the dairy sector to provide broad, general estimates of market returns. The value of market indicators is a basis for identifying trends and to use them for more precise purposes goes beyond the limits of their scope and accuracy.