Looking to the latter half of 2010
“For many, 2009 was hardly a year that people expected or knew how to analyze in terms of historical perspective. At the tail end of 2008, with commodity prices throughout the world plummeting, dairy prices came tumbling down too. We entered December 2008 with block cheese prices in the $1.80s and by Jan. 7, 2009, blocks were trading at $1.04, representing a 42 percent decrease in market value in just a 30-day period. Chicago Mercantile Exchange butter made it as low as $1.09, and the nonfat dry milk price spent several months at $0.80. International prices, operating without government support levels, were reported in at prices much lower than the United States.”
Q&A: Risk Management
“The CME Group is expected to launch a new skim milk powder (SMP) futures contract in early 2010. Here is what you need to know about the effort.
Q: Why was the new SMP contract developed when the United States already had a nonfat dry milk (NDM) contract?
Brian Rice: The SMP contract was developed in an attempt to fill a void. The global dairy community is asking for 1) robust price discovery and 2) broad and liquid price risk management tools in the SMP/ NDM products. The existing NDM contracts have not satisfied this need because the product is to a U.S. spec that is of limited value in a global context and the cash settlement price is not correlated enough to physical prices”
Why is butter trading in the $2.20s?
“The butter market has had the perfect set up for higher prices this year. A number of influencing factors have contributed to the 100 percent increase in price since February 2009, including an active export market, Cooperatives Working Together (CWT) assistance and overall global trade. One of the main contributors, though, has been reduction of supply on the farm.”