Forward Market Performance (FMP)

Published 13 March 19

Declines in the butter futures markets pushed the future milk value equivalent (FMPE) down in February, although SMP markets added some support. Settled prices for butter contracts generally declined through February, with strong supplies in recent months and the upcoming flush likely weighing on the market. The SMP market was more mixed, as prices dipped at the start of February and eased slightly at the end, but also rose notably through the middle. The lifted weight of intervention stocks is likely still giving some support to the market, but strong supplies may be adding some uncertainty. Overall SMP futures were up on the month in February, but the declines in butter outweighed this to push FMPE down.

On the EU wholesale markets, SMP prices continued their steady rise through the month. Butter prices changed direction from up in January to a decline in February, but on a monthly average basis there was only marginal movement. Therefore SMP price increases pushed the EU milk equivalent value (EU AMPE) for February up by 2% from January.

The forward market indicator (FMP) remained positive this month, though was lower than in January. Although there is still a gap between the spot and futures markets, its reduction suggests markets have moved somewhat more in line with each other.

 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.