What is mark-to-market and why does every dairy trader need it?

Mark-to-market means valuing your open positions at today’s market price instead of at the price in your contracts. The difference is your unrealised result: what you would gain or lose if you closed the position now. For dairy ingredient traders it is the way to see, before invoicing, whether open contracts and stock are still worth what you expected.

Comment cela fonctionne-t-il ?

With illustrative figures:

• You hold 100 t of butter bought at €6,800 per tonne. The market is now at €6,500. Unrealised result: −€30,000.
• You sold 50 t of SMP at €2,500 per tonne that you have not yet bought. The market is now at €2,450. Unrealised result: +€2,500, because you can cover the sale more cheaply than you sold it.

Together: −€27,500. Nothing has been invoiced yet, but this is the value of your open book today. Mark-to-market works on top of your position: first you need to know what you are long and short per product and period. See How do you track your position in dairy ingredient trading?

Where do market prices come from?

Most dairy ingredients have no single exchange price. Traders use a combination of sources:

• Weekly quotations, such as those published by ZuivelNL for butter and powders, or the Kempten exchange for butter.
• Futures settlement prices on EEX for butter, SMP and whey powder.
• Global Dairy Trade results for Oceania prices. See How does the Global Dairy Trade auction work?
• Your own recent deals, for products without a public price, such as specific whey protein concentrates or lactose grades.

Choose one source per product and use it consistently. Switching sources from week to week makes the results incomparable.

Why it matters

• Earlier warning. A falling market shows up in your figures when it happens, not when the deal is invoiced months later.
• Better decisions on open positions. You can see which positions cost money to hold and decide whether to sell, cover or wait.
• More accurate month-end figures. Your result includes the value of what is still open, not only what has been invoiced.
• Conversations with your bank or financier. They want to know what your stock and open contracts are worth.

What to watch out for

• Quality differences. A quotation for food-grade SMP does not apply to feed grade. Apply a premium or discount per quality.
• Location and delivery terms. A price delivered in Germany is not the same as a price ex works in the Netherlands.
• Currency. GDT prices are in US dollars; convert them at the current rate. See How do you manage currency risk when you buy in USD and sell in EUR?
• Frequency. With weekly quotations, a weekly revaluation is usually enough.

Mark-to-market and Moo Software

In a spreadsheet, mark-to-market means copying market prices into a sheet and matching them to positions by hand every week. In Moo Software, the position list shows quantities and average prices per product and period based on live contract, order and stock data, which is the starting point for any valuation. Futures positions appear in the balance report of the Futures module, and the precalculation lets you compare the expected result of a deal with the realised result.

See it with your own data

Want to see how Moo gives you insight into your positions and results? Réserver une démo or Contactez-nous.