Milk & dairy: Trading
The online auction that now prices almost all dairy
What this tab covers How and where it is bought and sold: who buys and sells, exchanges and benchmarks, contract types, the big trading houses and how prices are discovered.Dairy is traded as processed products. Radetzki and Wårell describe the Global Dairy Trade platform, an online auction launched in 2007 that now influences nearly all dairy trade (pdf p. 118). Its regular auctions, led by Fonterra, set reference prices for powders and butter. CME lists Class III milk, cheese, butter and dry whey futures. EEX and SGX trade European and New Zealand dairy futures. Fittingly, the New York Mercantile Exchange began life as a butter and cheese exchange (Yergin, pdf p. 1248).
Where it is bought (buyers)
- Food manufacturers and recombining plants in China, Southeast Asia, Algeria, Mexico and the Middle East buy powders on GDT or by direct contract
- Retailers and food-service buyers in importing countries buy cheese and butter from EU, US and New Zealand exporters
- In India, dairies buy milk from village societies and from farmers via collection agents
Where it is sold (sellers)
- Fonterra and other New Zealand processors sell powders and butter, much of it through GDT auctions
- EU co-operatives and private dairies export cheese, butter and SMP; US processors export cheese and nonfat dry milk
Exchanges and benchmarks
| Venue | Contract | Notes |
|---|---|---|
| Global Dairy Trade | Fortnightly online auctions of WMP, SMP, butter, AMF, cheddar and other products | world reference for powder prices |
| CME | Class III and Class IV milk futures (200,000 lb), plus butter, cheese, nonfat dry milk and dry whey futures | US hedging; Class III tracks milk used for cheese |
| SGX-NZX | WMP, SMP, butter and AMF futures | settled against GDT results |
| EEX | Butter, SMP and whey futures | European reference |
| India | none | no active dairy futures; procurement prices are set by co-operatives and private dairies |
Contract types
- GDT auction contracts for delivery one to six months ahead
- Annual or quarterly supply contracts with food manufacturers
- Farm milk prices set on fat and solids-not-fat content (India) or by US federal milk marketing order classes
Top trading houses
- Dairy traders and brokers such as Interfood and Hoogwegt, plus the trading arms of large co-operatives
How prices are discovered
- GDT auction results
- CME spot and futures prices for cheese, butter and powders
- European Commission and EEX quotations
- Co-operative farm-gate price announcements in India