Forward Market Performance (FMP)

Published 7 November 18

EU wholesale markets declined again in October, with both fat and powder prices down on the month. SMP was down 2.5%, with butter down 8.1%. EU milk supplies performed better than feared through the summer, which, combined with strong supplies coming out of New Zealand, put downwards pressure on the markets in October. This particularly affected butter prices, driving down the high premium EU butter had over other regions. Overall, these shifts caused the EU milk equivalent value (EU AMPE) to fall 7% from September.

On futures markets, settled prices for SMP contracts fluctuated through October, but were generally lower than in September. Butter contracts prices followed a similar pattern. With the EU production for 2018 still forecasted to exceed 2017, and New Zealand demonstrating strong year-on-year growth as it moves towards its seasonal peak, the expectation of ample supplies in the future is weighing on prices. Based on the settled prices for Feb-19 contracts, the average value of milk on the futures market (FMPE) fell by over 4% in October.

Despite a larger drop in prices on physical markets than futures markets, the forward market indicator remained in negative territory. This reflects a continued expectation of lower pricing later in the year as product availability improves.

 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.