The evolution of dairy price discovery and risk management
While still new in some parts of the world, dairy futures trading started in the early to mid-1990s in the United States at both the New York Coffee, Sugar and Cocoa Exchange and the Chicago Mercantile Exchange (CME). By the late 1990s, the CME had become the central marketplace for futures and cash trading of the main U.S. dairy products. Since that time, cash markets have transitioned from weekly to daily, futures trading hours have expanded to 23 hours per day, and futures and cash trading have moved from open outcry in the pits to electronic platforms.
The CME spot market has long been the central price discovery point for cheese and butter. A few years ago, the nonfat dry milk (NDM) trading rules were modernized and that market became relevant as well. In 2013, only 120 loads of spot NDM were traded at the CME. In 2016, nearly 800 loads of NDM traded and 170 loads traded in the ﬁrst quarter of 2018. This trend is seen in total dairy spot trading as well. In 2013, 1,715 spot loads were transacted for the year. In 2017, nearly 4,700 spot loads of cheese, butter and NDM traded following the transition to the electronic platform. While there was concern by some about losing liquidity, it is clear electronic trading has been a boon to dairy markets.
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