Forward Market Performance (FMP)

Published 6 August 18

With the holiday season limiting activity on dairy markets and continued growth in milk supplies, there was a general weakening of wholesale prices in the EU. While cheese prices did not move much in July compared to June, both SMP and butter prices fell by between 2-3%. This brought the EU milk equivalent value (EU AMPE) down 3% in July.

Pricing on futures markets also saw some downward movement, with settled prices generally lower in July for contracts with autumn expiry dates. SMP showed some upward movement in settled prices at the end of the month, but remain lower on average for the month. This pushed the average value of milk on the futures market (FMPE) down by 6.7% compared to the previous month.

The shift in the Forward Market Indicator to a negative value reflects an expectation of better product availability later in the year, and potential downward movements in wholesale pricing. The continued growth in milk production, along with higher production of cheese and butter in the first five months of the year, will be leading buyers to be less concerned over securing product for the final quarter of the year, hence the lower prices for futures contracts.

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 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.