[农林牧渔]ANALYSIS OF EXPECTED PRICE DYNAMICS BETWEEN FLUID MILK FUTURES CONTRACTS AND CASH PRICES FOR FLUID M.pdf

University of Wisconsin-Madison January 1997 No. 407 Analysis of Expected Price Dynamics Between Fluid Milk Futures Contracts and Cash Prices for Fluid Milk By T. Randall Fortenbery, Robert A. Cropp Hector O. Zapata AGRICULTURAL APPLIED ECONOMICS STAFF PAPER SERIES Copyright © 1997 by T. Randall Fortenbery, Robert A. Cropp Hector O. Zapata. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Analysis of Expected Price Dynamics Between Fluid Milk Futures Contracts and Cash Prices for Fluid Milk Introduction and Objectives Reduced levels of government intervention in the pricing of dairy products coupled with relatively low farm gate prices and substantial price volatility have resulted in a business environment in which dairy industry participants need to find alternative ways to manage price risk. The Coffee, Sugar, and Cocoa Exchange, Inc. (CSCE) responded to changes in the dairy industry by launching futures contracts on Cheddar Cheese and Nonfat Dry Milk in 1993. The initial expectation was that the correlation between cheddar cheese prices and fluid milk prices was high enough that cross-hedging opportunities for milk in the cheese contract would encourage hedging activity by both cheese manufacturers and firms involved in the trade of fluid milk.1 To date, however, there appears to be little futures pricing activity by individuals engaged in the trade of fluid milk. As a result, both the CSCE and the Chicago Mercantile Exchange (CME) in 1995 petitioned the Commodity Futures Tradin