Tuesday, April 27, 2021

Today In Lesser-Known Derivatives: "US futures traders gorge on cheddar amid race to lock in supplies"

 From the Financial Times, April 26:

Block cheese market volumes soar as economy reopens and anticipation of grilling season
Traders in US cheese futures now hold contracts worth 64m pounds of block cheddar, a sharp increase from the start of the year, with companies racing to lock in supplies in anticipation of accelerating demand as the American economy reopens from coronavirus lockdowns. 

Outstanding volumes in the Chicago Mercantile Exchange’s block cheese futures market has soared to 3,200 contracts, up from 469 at the start of this year and the highest level since the futures were launched in January 2020.

The jolt of trading activity comes after a stronger than expected recovery in US restaurant sales as well as expectations of continued robust demand from households ahead of the American grilling season. 
Prices for the 20,000 pound blocks of cheese for June delivery have eased to around $1.87 a pound from highs of almost $2 earlier this month....  
"Honey, did you remember the cheese?"
"Umm, yeah, about that, how much room do we have in the refrigerators?" 
This must be a new series of futures contracts because years ago we looked at the dairy complex:
..."Ironically, Milk Futures Are Not Very Liquid":
We don't have many posts* on the dairy business, every couple years or so I break out the "What's Mooving" headline but the business, at least the way (whey?) it's structured in the U.S. is tough to trade from a portfolio perspective. In addition it seems to foment (ferment?) some simply awful puns in folks who write about it.

The futures are currently in backwardation, not that anyone cares....

*Back in 2010 we had a post, "CME Group expands dairy complex with cheese futures" which I intro'd with:

Years ago I heard of a Chicago company that made a whey-based artificial cheese.

Apparently the operation was headed by a mad scientist type who had come up with the formula but had no marketing ability.

He was producing the stuff and not selling any, converting all the investors cash into this "analog" goop and storing it in Chicago area warehouses.

Then the Chernobyl reactor blew, the price of whey skyrocketed, I've no idea what the connection was, the company went broke and the receivers opened the warehouses to find tons of this 'cheeze', semi-molten in the summer heat.

That's what I thought of when I saw this story, tons of the stuff oozing out of bonded warehouses. No connection of course, just a visual....

And with that, we start our countdown to the resumption of the Cooper's Hill Cheese-Rolling and Wake for 2022 (CXL'd in 2020 and 2021):


From GloucestershireLive, the 2019 contest (note cheese wheel left, lower)

Here's the 2017 report:

2nd June 2017 
Reluctant locals forced to participate in cheese rolling
UNWILLING Gloucestershire residents have been made to chase a wheel of cheese down a hill by Londoners wanting to see authentic rural life.

To the chagrin of the locals, they were forced to recreate their proud tradition of risking life and limb running down a near-vertical gradient in pursuit of cheese for the amusement of weekend visitors.
Tom Logan of Stroud said: “We don’t actually do stuff like this any more. I’m an IT consultant.
“If I need cheese I just go to Tesco. Even a really big cheese doesn’t excite me to the point where I’d be willing to break an ankle.

“But they said we had to, and they’re rich, and if they sold up property values round here would collapse, so we all chased a cheese down a hill and my solicitor’s fractured two vertebrae.”...MORE
If you go, bet on this guy:
Chris Anderson