By Dow Jones Business News,
February 03, 2014, 04:07:00 AM EDT
By Rebecca Howard
WELLINGTON, New Zealand--U.S. investors betting that a loosening of China's one-child policy will boost demand for
milk have won access to directly trade dairy futures in New Zealand, the world's biggest milk exporter.
New Zealand stock exchange operator NZX Ltd. said Monday it has been registered by U.S. market watchdog the
Commodity Futures Trading Commission, allowing U.S. investors to trade options in a range of milk products including
whole and skim milk powder for the first time. Previously, U.S. investors could only participate in the NZX Dairy
Futures Exchange via a third party.
It comes as foreign investors are increasingly seeking access to the New Zealand's dairy industry as Asian
consumers turn to higher-protein diets, boosting global demand.
"What this does is open up a whole new section of the market in terms of customers wanting to access the market,"
said Kathryn Jaggard, head of derivatives at NZX. "Over the next 30 years, demand (for dairy products) will continue to
Global trade in dairy futures in the U.S. and elsewhere is relatively small. The Chicago Mercantile Exchange
launched an international skim milk contract in May 2010 that was later delisted after trading only one contract,
according to Ms. Jaggard.
But in this small island nation--home to more cows than people--dairy is big business.
Nicknamed the Saudi Arabia of milk because it accounts for a third of global exports, New Zealand has benefited
from a 48% rise in dairy prices over the past 12 months. The price gains have pushed the country's terms-of-trade to a
New Zealand's milk powder exports to China hit a record 4 billion New Zealand dollars (US$3.23 billion) in 2013,
according to Statistics New Zealand.
At the time of its launch in October 2010, the NZX Dairy Futures Exchange was the world's first cash-settled market
for dairy futures, meaning no milk products changed hands. Most other markets, such as the Chicago Mercantile Exchange,
trade in physical products.
Much of the demand for dairy derivatives traded on the NZX comes from overseas, according to Ms. Jaggard. Last
August, the exchange changed its trading hours to overlap with the U.S. and European trading days. Nearly 37,000 milk
lots were traded in 2013, up from 210 in 2010, with around 45% of trade occurring during offshore trading hours, she
New Zealand's reliance on the dairy industry has its downside, making it especially vulnerable to industry setbacks
as well as shifts in global investor sentiment.
In August, the New Zealand dollar shed nearly 2% of its value when Fonterra Co-Operative Group Ltd., the world's
biggest dairy exporter, said some of its products might have contained harmful bacteria . The discovery led to product
recalls in China, New Zealand and elsewhere.
Units in the Fonterra Shareholders Fund tumbled in December after Fonterra missed market expectations with its
earnings guidance for fiscal 2014. The fund was launched in 2012, giving outside investors access to the farmer-owned
cooperative for the first time. They last traded Monday at NZ$6.25, against a 12-month high of NZ$8.09.
Write to Rebecca Howard at email@example.com
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