VIEWS: 7 PAGES: 21 POSTED ON: 7/30/2010
Presents CME Cash Market The market of last resort Overview • Participants in the CME Cash Market • Contract Specs • How the market works • Why wou d you buy o se c eese on the exchange? W y would or sell cheese o t e e c a ge? • The CME Effect • CME and the International markets • The Perfect Storms: the rise to $2.25 to the fall of $1.05 • Is the CME cash market manipulated? • Is the Market growing? • Final Thoughts The participants • 20-25 floor brokers who are representing CO-OPS, cheese companies, import/export companies, food services, physical brokers, etc. • Limitation of personnel on the trading floor has some floor brokers working 2 phones during the cash call, representing 2 different clients; broker on both sides of trade. • Total clients represented: 30-35 with 50% of participants on the call using the markets • 5 to 7 are very active • Floor brokers are independent of the companies they represent Contract Specs Blocks and Barrels • All cheese delivered on the exchange should meet the requirements of Wisconsin State Brand, USDA Grade A, or better for blocks. Extra Grade or better for Barrels • 40,000 to 44,000 pounds gross weight • Age of cheese shall not be less than 4 days or more than one month (30 calendar days) since date of make • Cheese for barrels should be white, while blocks shall be colored Contract Specs • All cheese that shows as open on the exchange shall show shippers lot number, net weight, vat number and date of make • All cheese sold on the exchange shall be produced in factories which at the time of production were surveyed and approved by the Grading Service of the USDA and are on the eligible list of that Service • Freight Differential: Cheese delivered from points more than 300 miles from Green Bay, Wisconsin shall be subject to a freight differential. The differential shall be deducted from the gross weight and is the amount by which the cost of shipment from the shipping point to Green Bay WI exceeds the cost of shipment for 300 miles In other words, the Freight Differential could be an incentive to buyers What does freight differential mean? • If I buy cheese from ID being shipped to Chicago, I will receive a freight discount from the seller of 3 cents or $1200.00 • If I buy cheese from CA being shipped to Chicago, I will receive a freight discount from the seller of 4 cents or $ g $1600.00 • If I buy cheese from a ID plant and I ship to CA, I will receive a $1600 00 freight discount from the seller of 3 to 4 cents or $1600.00 • If I buy cheese from a WI plant and ship to IL, I will not receive a freight discount from the seller • Why is Freight discount important? This could motivate buyers to buy h h h b cheese on the exchange b h h because they can save as much as 4 cents depending on the delivery point How does it work? • Cheese markets open 10:45 Central • Market is open for 2 minutes before the call and could p last up to 10 minutes with a hard close • The call occurs when the exchange is set to close the market on a auction style method First call!” “First call! “Second call!” Third call!” “Third and final call! “CLOSED!!” How do you place orders? • Bids and offers can be posted anytime throughout the session market session. The market works just like open outcry (what is open outcry?) with the best bids and offers being represented • You may buy or sell a load of cheese within a penny of the last price , g • After the first 2 minutes of trade, we go into “the call”. During the call, if you decide to place an order you need to better the market in order to keep it open, or you can buy/sell a load of cheese at the best bid or offer price Example: placing a order during the call • If the last price on blocks is 14500 and you want to bid in the call, you would have to bid 14525 in order for the ,y market to continue to be open and for your bid to be valid • Using that same example of 14500 as the last price for blocks and you want to bid 14475 in the call, the call would not continue and the market would close • Using the same example of 14500 being the last price for y , you blocks and you want to offer a load in the close, y would need to offer a load at 14475 in order to be valid in the market Why would you buy or sell cheese? The exchange can be your best customer or your best supplier Buy side • Could be the cheapest product in the country g – Freight Discount – Overage vs. CME • Could be the only product available in the country Sell Side Could b h b i h • C ld be the best bid in the country • Could be the biggest buyer in the country Both sides like the Transparency The CME Effect • All cheddar in the country is priced off of CME, some examples of pricing are – The prior weeks average – Spot price with a overage or in some cases flat-to-under – A formula based on the block/barrel spread – Date of make, ship and order • Other cheeses are priced off CME, and depending on the type, will determine the basis – Mozzarella 3 to 5 cents over CME – Parmesan 35 to 55 cents over CME – Swiss 20 to 23 cents over CME – *Gouda (the world choice of cheese) 40 cents over CME CME and the International Market • Gouda is the leading cheese in the export market. When tighter markets are tighter, white cheddar blocks could be substituted • Many manufactures in the U.S. can switch back and forth from cheddar to: – Gouda – Mozzarella – Hard Italians • Why is this important? It affects cheddar pricing The Perfect Storm to $2.25 • U.S. and World economies were running very strong. U.S. spending was very high • Commodity prices were relatively low while energy prices were on the rise. Government push on bio-fuels added to support on corn. • Energy producing countries gained wealth and an appetite for luxury items including dairy • Droughts in certain dairy producing region (Oceania) and lack of physical product enable the U.S. to gain market share • China hosting the Olympics and showing the world their new found wealth • The U.S. Dairy Industry continued to expand to meet the need of the International market • Life was good and then the bottom fell out The Perfect Storm from $2.25 to $1.05 • The sub prime market was knocking on the door • Commodity prices exploded with energy prices becoming unsustainable • Unemployment was rising, while housing prices and consumer confidence were falling • Aggressive expansion in the U.S. Dairy Industry combined with rapidly falling demand and other countries coming back online • Stock market, Commodity markets, Money markets all falling • Which brought us from 225 to 105 The Perfect Storms Class III Red S&P Green Crude Pink Corn Black Is the CME’s Cash Market manipulated? • Why aren’t there more people participating on the exchange? -Political -Players represent the Gamut of the dairy industry -Market is growing • Why do people raise or lower markets by pennies at a time? -Spread Attempt -Attempt to loosen product -Need to get something done • Why does the spread between block and barrels widen and in times invert? -Export boom 10-15 spread -Foodservice strong -Barrel premiums can only last so long Is the CME’s Cash Market manipulated? • Why do offers and bids show up in size? When available -When liquidity is available, you may want to show size to get it done • Why do offers and bids show up in size on the final bell? -Hectic sessions with a lot of liquidity could entice people to show size on the close to get it done • What are your questions? CME and the Cheese Session • With Cheese traded on the exchange, our cash market is monitored much more closely and with greater transparency, verses the over-the-counter markets which have no oversight • The majority of American cheese in the country is represented at the exchange • One of the biggest converters in the country participates on the exchange The Cash Market is i • Th CME C h M k i growing CME vs. NASS Chart NASS Cheddar Volume Vs. CME Cheddar Volume 1,200,000,000 1,000,000,000 800,000,000 600,000,000 NASS 400 000 000 400,000,000 CME 200,000,000 0 Year 2003 2004 2005 2006 2007 2008 2009 CME/NASS 3% 5% 4% 2% 4% 5% 8% YOY +/- . 51.47% -9.72% -50.92% 82.95% 28.65% 56.64% Conclusion here the Markets are going to go where they need to go to and no one person or company is bigger than the market Thank you very much for your time and attention Please feel free to ask any questions Please be advised FUTURES AND COMMODITIES TRADING INVOLVES SIGNIFICANT RISK AND IS NOT SUITABLE FOR EVERY INVESTOR. INFORMATION CONTAINED HEREIN IS STRICTLY THE OPINION OF ITS AUTHOR AND IS INTENDED FOR INFORMATIONAL PURPOSES AND IS NOT TO BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION TO BUY OR TRADE IN ANY COMMODITY OR SECURITY MENTIONED HEREIN. INFORMATION IS RELIABLE OBTAINED FROM SOURCES BELIEVED RELIABLE, BUT IS IN NO WAY GUARANTEED. OPINIONS, MARKET DATA AND RECOMMENDATIONS ARE SUBJECT TO CHANGE AT TIME ANY TIME.
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