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Microsoft PowerPoint - Rice Diary Cheese MarketA

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  • pg 1
									      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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