A few days ago, it was announced that CME Group will take over the dairy futures business of EEX. IDM International Dairy Magazine spoke with John Ricci, Global Head of Agricultural Products at CME Group, about the reasons for the Chicago-based exchange to enter the European market place.
IDM: What was the real reason behind the CME Group’s decision to enter the European milk derivatives market?
Ricci:The European dairy market is one of the largest in the world, and with U.S. dairy volumes increasing 101% over the past five years, expanding into Europe is the natural next step in helping producers and consumers access capital efficiencies and manage regional price risk. CME Group offers the deepest liquidity in dairy futures and options in the U.S., and our transaction with EEX brings that strength to European dairy. In addition, our markets attract a broad mix of commercial and non-commercial participants, so enabling them to trade European dairy will significantly widen market participation. And with our long track record of developing transparent, regulated markets, we are uniquely positioned to offer clients access to a global market in one venue.
IDM: Were EEX staff who had previously been involved with milk futures taken on by the CME Group?
Ricci: No. Our agreement with EEX does not involve the transfer of personnel. EEX currently operates a European dairy business, including indices and contracts, and under our agreement it will exit that business. The agreement is focused on ensuring a smooth transition of the dairy business — the indices, the contracts and the relationship with market participants — to CME Group. EEX has committed to supporting that transition through the end of 2027.
IDM: What is new about the announced futures for Europe? After all, similar futures already exist on the EEX.
Ricci: The new contracts include both futures and options for European Skimmed Milk Powder, European Butter, European Whey Powder and European Liquid Milk. Another difference is that European dairy will sit on a single platform alongside our U.S. complex, which means cross-margining, capital efficiencies, and the kind of deep liquidity that comes from running the world’s largest dairy futures market. Because both the U.S. and European contracts share one venue and one clearing house, participants gain access to intercommodity spreads between related products. This lets hedgers deploy capital more efficiently than they could across separate venues and clearing arrangements. In addition, CME Direct provides a fully configurable front-end for order entry. Pack (strip) functionality allows multiple consecutive contract months to be executed in a single transaction, and the platform’s implied spread functionality can generate spread orders from outright leg orders, deepening liquidity in both the spreads and their component legs. The contracts will initially track EEX indices for continuity, and then transition to CME Group’s own European indices.
IDM: In which European country is risk management using milk futures currently the most advanced?
Ricci: Use of dairy futures for risk management is growing across Europe. With our transaction with EEX, we’re building on the ecosystem they helped establish to bring the liquidity, market depth and risk management tools the U.S. market has already validated to the European complex.
IDM: What is the total turnover for all milk futures worldwide, in the USA, in Oceania and in Europe?
Ricci: There is no single, aggregated global turnover figure that combines all milk and dairy futures worldwide into a single cash value because dairy derivatives are fragmented and tracked by separate regional exchanges using different contract types. However, with the addition of European dairy futures and options, CME Group can build on record activity in our U.S. dairy franchise to offer clients access to a global market in one venue. For instance, the Dairy complex reached record monthly open interest of an average 420,922 contracts a day in September, a 42% increase year over year, and an all-time daily open interest record of 467,496 contracts on October 19.
Photo: CME Group
