OMF New Zealand Dairy Futures report – October 17, 2013

 The GDT arbitrage on Dairy; too big to ignore The present arbitrage in WMP and SMP is too big to ignore for GDT buyers. The differential between February 2014 Futures and C6 on SMP & WMP is over $550 per tonne; that’s over a 10% differential.  This is an easy arbitrage to take advantage of and it would also be considered easier to buy February futures in size as opposed to C6 – which can be thin. Let’s run through an example using February WMP Today – buy February WMP futures at $4680.  You have hedged your buy price at $4680 versus C6 at $5245 – a $565 saving. In February – buy your WMP requirement on GDT in C2 spread evenly over the two auctions. In February, when you buy your WMP on GDT (over the two auctions) – you will be (automatically) closing your futures position on that average. SMP February example Today – buy February SMP futures at $4400. You have hedged your buy price at $4400 versus C6 at $4980 – a $580 saving. In February – buy your SMP requirement on GDT in C2 spread evenly over the two auctions. In February, when you buy your SMP on GDT (over the two auctions) – you will be (automatically) closing your futures position on that average. Click here to view the full report.