Stock Exchange-traded contracts could improve hedging and planning reliability for farmers (and other operators in the dairy sector) by tackling high volatility, according to a new report from the European Commission.
Private sector financial instruments such as futures and options can help farmers to tackle risks stemming from unforeseen price shocks and enhance planning reliability. Dairy financial products have been around in the United States since the 1990s, while such contracts were only introduced in the European Union (EU) as recently as in 2015 in the current form. Volumes traded are still low but significantly increasing, thus showing a growing interest for futures in the dairy market.
The new EU Agricultural Markets Brief explains how futures markets work in practice (illustrated with examples) and compares the use of dairy futures in the European Union, United States and New Zealand, while identifying remaining obstacles in Europe to the development of futures markets.