Online trading first step to dairy futures market?

Sunday, May 4, 2008

by SUSAN MANN

“We’re a relatively small exporter,” says John Core, CEO of the Canadian Dairy Commission. Canada’s dairy product exports are very restricted because of the World Trade Organization agreement.

“The Canadian dairy industry is an isolated, insular industry that doesn’t trade,” says Don Jarvis, president of the Dairy Processors’ Association of Canada, which represents all major dairy processors across the country. “We’re not involved at all in the international trading environment.”

Fonterra is a cooperative owned by more than 11,000 New Zealand dairy farmers who supply more than 14 billion litres of milk each year. It plans to use online trading as a way to take advantage when world prices go up, which is something it hasn’t been able to do in the past because it usually signs supply contracts up to a year in advance.

Once the system is in place it will be the first time dairy products will be traded online. Pierre Doyle, assistant director in Agriculture Canada’s dairy division, sees Fonterra’s plan as a natural evolution in the dairy trading business. “It’s another tool in the box of traders. Fonterra, being a big trader on the world scene, is using that tool.”

Dairy Farmers of Canada plans to monitor what Fonterra does online as a matter of interest, says a spokesperson, adding all dairy industries are interested in what Fonterra does because it’s a large company in the export market.

Fonterra, the world’s biggest dairy exporter, controls more than one-third of international dairy product trade. The New Zealand company expects to sell about $800 million (U.S.) worth of milk powder during the first year through the new Web site, GlobalDairy Trade. Other dairy commodities will be added during the year. The system will be run by an independent trading manager.

Fonterra says it will eventually allow its supply partners and maybe even competitors to participate. It predicts online trading will eventually lead to an international dairy futures or derivatives market, like ones for other commodities such as oil, sugar and coal.

But even this won’t impact Canada, Jarvis says. “Changes that occur on a global level with respect to futures trading or anything like that have very little impact in Canada because we’re just not in the international dairy industry.”

In Canada there are 14,660 dairy farms producing 75 million hectolitres of milk each year.

The latest world price figures in Canadian dollars compiled by Agriculture Canada, show increases for some products compared to the same April 25 time period in 2007 and decreases for other. Skim milk powder is $3,442 per metric ton, which is down 28 per cent from 2007, while whole milk powder is $4,455 per metric ton, a seven per cent decline from 2007. Whey powder at $709 per metric ton is also down. Compared to 2007 it’s 65 per cent lower.

Products that increased in price are: cheddar, butter and butteroil. Cheddar is $4,961 per metric ton, a 53 per cent increase over 2007, while butter at $4,151 per metric ton is 61 per cent higher and butteroil at $4,985 a metric ton is 48 per cent higher than 2007. BF