OMF NZ Dairy Futures report – November 14, 2013

GDT next Tuesday – November Futures will settle against the average GDT versus Futures Arbitrage – how the process works in reality   COMMENTARY A reminder to all those arbitraging the Futures against GDT.  Next Tuesday is the final GDT for November – a point at which the November Futures will be cash settled against the average of the two GDTs in November.  To complete the arbitrage you need to buy the final 50% of your requirements in C2.  We had a few questions on yesterday’s report and the GDT arbitrage and how to actually do it.  It’s quite a simple process.  You buy the corresponding Futures shown below instead of buying the forward on GDT.  FYI – many are doing this.  The process goes like this:   Example: Instead of buying C4 on WMP at $4905 buy the January futures at $4665.  You must hold and maintain the Futures position until January.  In January, in the first GDT, you simply buy 50% of your requirement (half of your futures position) in C2 and buy the remaining 50% (the balance of your futures position) in the second C2.  This will transfer your futures position to the physical product and automatically “cash-up” your futures.  It does not matter what you pay for C2, you are long physical at $4665 and save around $240 per tonne.