Which way is the economy going?
Chicago’s financial sector should continue to improve slowly after employment bottomed out in late 2011 at 285,000 workers. Moody’s forecasts a gain of 1,200 jobs by year-end, up less than 1 percent to 292,600 employees.
Regulatory battles following enactment of Dodd-Frank financial reforms, which absorbed a lot of management attention in recent years, and balance-sheet cleanups should finally shake out this year, setting the stage for growth.
“Once the ground is settled, I think we’re going to have a renaissance in financial services,” says Brian Rice, principal and founder of Chicago-based Rice Dairy LLC, which specializes in dairy and other agricultural commodity futures trading. “We’re hiring more people, investing in technology” and developing new products.
Know Your Markets: Risk-Management Returns
Recently, I was talking with a dairy producer who had used a risk-management strategy in the past but was displeased with the results.
With some further discussion of his past hedge strategy, I realized that he wasn’t sure what exactly he had done and, more importantly, he had no idea what type of protection he had for his dairy business. He had essentially put money into risk-management program with no understanding of the level of protection he was receiving.
Know Your Markets: Risk-Management Returns
It’s often asked how a company can improve hedge performance when executing dairy hedges. One solution is utilizing Over-The-Counter (OTC) dairy markets that correlate exactly to the underlying risk profile the hedge is trying to protect. By settling your forward cheese sales or purchases against the same weekly or monthly CME block index used to make the original sale, one can completely remove the basis or settlement risk.
Hedging dairy, from a quant’s view
I am commonly referred to as a “quant,” or a quantitative analyst. What does this mean? In the world of financial markets, it means I specialize in the application of mathematical and statistical models. It also means I am the “go to guy” at Rice Dairy for anything involving complex data analysis ranging from regressions and correlations to cut and paste! For me, an adequate assessment of the market requires a hybrid approach constructed of quantitative analysis with the qualitative approach.
A lot of changes could happen before Monday’s market opening
Doing the right thing
I’ve never experienced hunger and chances are you haven’t either. But today more than 37 million Americans are struggling with a lack of food on the table. On a daily basis, one in every six families in this great country struggles with hunger.
More than 16 million children are among the hungry in this country. These kids are not just hungry; they are missing out on the nourishment they need to reach their full potential:
- To get a better education.
- To become a more productive member of society.
- To raise their families in the absence of hunger.
Guess what these families most often request upon arriving at the local food bank? Milk. Guess what food banks don’t have enough of? Milk.
Relationship between milk price, several economic indicators
With the high level of volatility in milk prices in recent years and even recent months, many people look to other economic indicators and indexes to see if a pattern exists.
In order to get an idea of any correlations, I tracked milk prices with the consumer confidence index, crude oil price, gross domestic product and disposable personal income.
The international market led the U.S. higher, is it now leading it down?
Over the last several years, the international dairy market has been a highlight for the U.S. dairy industry as it continues to be one of the primary growth venues for United States’ milk supply. Year-to-date (January 2014-May 2014) USDA Foreign Agricultural Service data already suggest that record volumes of nonfat dry milk/skim milk powder (NDM/SMP), whey and cheese have left the country during this time frame. According to Jerry Dryer’s First Monday (Dairy) Supply and Demand Analysis, 16 percent of the U.S. milk supply is now going toward exports, which have been on an annual growth trend of 9 percent since 2008.
Making a change for the better in the nonfat dry milk market?
The dairy futures and options complex has a sleeping giant in its midst, one that could rival the size of the Class III and cheese. I’m talking about the nonfat dry milk market. Combining nonfat dry milk and skim milk powder production, the nonfat dry milk futures market has the potential to trade 50,000 contracts annually.
Euronext Seeks to Milk Dairy Derivatives Again
Euronext will introduce futures on butter, skimmed milk powder and whey powder in the spring of 2015. With the European market the world leader in dairy production and producers facing new volatility once the quotas are dropped, the timing is right for Euronext to take another shot at developing a dairy complex. The European Union milk production quotas are expected to expire at the end of March.
Eurex has cash settled dairy products which have attracted some participation, with open interest near 5000 contracts, according to Brian Rice of Rice Dairy. Euronext previously introduced physically delivered dairy products in 2010, but struggled to attract the necessary liquidity to keep the contracts listed.