Forward Market Performance (FMP)

Published 12 September 17

Although August normally brings a lull to European wholesale markets, the shortage of fats continued to impact on pricing, both on spot and futures markets. 

Nov-17 futures contracts for butter traded at increasing prices through August, while Nov-17 SMP contract prices remained relatively stable. As a result, FMPE for August rose by around 8% compared to the previous month.

Similar movements were seen on physical markets for both butter and powders. Butter prices rose by just under 6% on the continent as traders continued to look for short term cover, while SMP prices fell further.  The net result was an increase in the milk value equivalent by around 3%.

Overall, the FMP indicator for August was up in comparison to July.

While milk production in the EU is now higher than last year, and expected to rise through the remainder of the year on the back of more favourable pricing, the FMP indicator suggests markets expect demand going into the Christmas season will outstrip any resulting increase in available butter supplies.

 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.