Forward Market Performance (FMP)

Published 9 November 17

Market values dropped for butter through October, both in physical and futures markets as buyers have held back buying in hopes of further drops. However, stocks remain tight and there are reports that not all requirements are covered for the next quarter, which is limiting significant drops in pricing on futures markets.

Contract prices for Feb-18 butter and SMP both declined steadily through September, resulting in a 16% drop in the average value of milk (FMPE) from the previous month. The decline in futures contract pricing for SMP will have been driven by the supply situation, while declines in pricing for butter futures is more likely due to a drop in demand.

Meanwhile, physical (spot) markets saw smaller declines. Butter prices fell by around 8% but there was little change in SMP prices. The net result was a decrease in the milk value equivalent of around 6%.

The relatively larger downturn in prices on futures markets has meant the FMP indicator for October moved down in comparison to September. This is not unexpected given that EU milk production is typically rising in that period, and product availability will therefore be expected to 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.