Futures Contracts For Everything, Even Cheese

Some have said that if it moves, it can be taxed.  But based upon what we have seen over the last decade, if it moves you can also create a financial futures contract around it.  Today was supposed to mark the introduction of cheese futures at the CME.

CME Group lists the cash-settled contracts on the e-trading platform CME Globex.  Trading was scheduled to begin on June 20, 2010 for trade date June 21, but it seems that a technical issue has  kept the launch from coming on time.

The CME noted that the cheese contract was requested by customers (manufacturers and processors of cheese) so that they can attempt to hedge their risk profiles.  When this launch was announced, the CME noted that many of its customers were already involved in Class III milk and dry whey futures and options markets.  This new contract will allow these customers, in theory, to lock in prices.

These contracts will be listed monthly with each representing about 20,000 pounds of domestic cheddar cheese.  The tick size is $0.001 per pound.

The current hedges used by producers are Class III milk and dry whey futures, although this is meant to allow more producers and companies who need cheese for their products to hedge cheese.  The end product represents the third component of the Class III Milk “crush.”

The size of the domestic cheddar cheese market is estimated at between $5.5 and $6.3 billion U.S. dollars.   This chart here will show you how much cheese Americans are consuming per capita per year:

The CME noted, “Dairy prices depend upon supply and demand, as well as herd expansion or contraction. Given the time required for breeding and raising animals for milk production, the supply of milk can be difficult to control and its forward price challenging to anticipate. As a result, cheese futures and options are expected to offer numerous trading opportunities, and to be useful hedging tools for a variety of market participants.”

It’s true.  If it moves, you can create a financial futures contract around it.

JON C. OGG