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NYSE Liffe Sees Q3 Launch of Milk Powder Futures

Reuters, London, May 18 - NYSE Liffe is on track to launch skimmed milk powder futures during the third quarter of this year, Peter Blogg, head of product development for commodity derivatives at the exchange said on Tuesday.

"We're looking to get everything up and ready by July and make a decision at that point. The dilemma is whether to launch into the summer period or wait until September when everyone is back (at their desks)," Blogg told Reuters in an interview.

"It won't be any later than the third quarter."

Blogg said specifications had been virtually finalised with pricing in euros per tonne and physical delivery within a 150 km (93 miles) radius of Hamburg, Antwerp and Rotterdam either from recognised storage facility or directly from a production plant.

The unit of trading will be one truckload (24 tonnes).

"We've been consulting with working with people from right across the dairy sector. That includes trade associations, co-operatives, dairies, physical trade houses and food manufacturers. These are the people who helped to shape the contract," Blogg said.

"It will be led by physical market participants."

German/Swiss futures exchange Eurex has said it plans to launch futures contracts in skimmed milk powder and butter at the end of the second quarter of this year.

The Eurex contracts will use cash settlement based on established reference prices rather than physical delivery.

EU LIBERALISATION

"Our view is very much that as it stands today there is no physical price index that has a sufficient track record to be robust enough to act as the underlying mechanism for a futures contract," Blogg said.

"By far the most successful commodity futures contracts are the ones based on physical delivery," he added.

The European Union is in the process of liberalising its dairy sector, phasing out dairy quotas which were set up in the mid-1980s to deal with notorious EU milk surpluses.

Prices within the EU have become increasingly volatile with a sharp drop to record lows between August and September 2009 prompting widespread protests, strikes and supply boycott by farmers across the trading bloc.

Blogg said the exchange's long-term goal was to provide a global dairy market.

"Because of the various trade barriers that exist at the moment it is difficult to establish a global contract but ultimately that is what we would like to do," he said.