Forward Market Performance (FMP)

Published 12 December 17

Prices for dairy products fell again in November, although to different degrees on the physical and futures markets. Prices for butter and skim milk powder (SMP) on physical markets came under pressure in November due both to higher milk production and lower buying activity. However, futures markets saw a more muted response to the increase in production.

Contract prices for Mar-18 butter and SMP declined through November in line with expectations over higher seasonal milk supplies. This had the effect of reducing the average value of milk (FMPE) by just under 8% compared with the futures prices for Feb-18.

Meanwhile, physical (spot) markets were impacted to a greater degree by the fall-back in demand, with the drop in butter prices driving the 13% drop in the average value of milk (EU AMPE).

After the high negative value recorded in October, the FMP indicator for November continues to be negative suggesting market traders expect further easing in pricing going into the spring. This is not unexpected given milk production will be near its peak at that time and product availability should be improving.

  

 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.