NZX Launches Global Butter Futures Contract
Butter futures are a global risk management tool for participants operating in the dairy commodities industry. The contracts will trade off the underlying price for unsalted butter on the GlobalDairyTrade auction platform.
BNP Paribas and FC Stone will clear the contracts, continuing to provide a vital service by settling and clearing trades on behalf of all NZX trading participants.
NZX Head of Markets Aaron Jenkins commented: “With annual global trade in butter valued at more than US$2.5 billion, NZX is committed to developing tools to allow customers of New Zealand butter to manage the impacts of global price volatility.”
“Trading volumes on NZX’s Dairy Derivatives market are on track to increase by more than 125% in 2014, so it’s the right time now to expand our range of contracts we have on offer.”
The path to launch the NZX butter futures contract included extensive consultation and planning, with a range of external stakeholders in New Zealand and internationally.
NZX’s butter futures are cash settled. Cash settlement of a futures contract means trading is much simpler and easier without the need for participants to implement complicated delivery mechanisms nor risk being exposed to having to make, or take, delivery of product.
Cash settlement is even more desirable for dairy commodities versus other soft commodities where food safety criteria and the actual delivery process are complex and not globally standardised.