Physical markets following futures prices

Published 27 November 17

The Forward Milk Price Equivalent (FMPE*) indicator was developed to provide insight into how traders value milk in the near future. Based on prices for butter and skimmed milk powder futures contracts, it can give an indication of what traders are willing to pay to secure product in the future.

While FMPE does not tell us how much milk prices will change by, combined with other market commentary, it can give an indication of the potential movement, or trends, in prices.

Over the past two years, there appears to be a strong link between FMPE and the current milk equivalent value (EU AMPE), which is measured by prices for physically traded product in the EU. Although our FMPE is measured by prices paid for contracts 4 months ahead, we found FMPE gives a strong indication of where EU AMPE will head in 1 months’ time.

For example, in October, FMPE was giving a February 2018 milk value of 40.55 €c per litre. Based on historic relationships, that would appear to be a good indication of where EU AMPE will end up in November 2017. 

FMPE V AMPE Graph

 

*calculated in the same way as AMPE but using the EEX exchange closing prices for butter and SMP futures contracts four months in advance.