C.M.E. introduces cash-settled butter futures contract

by Keith Nunes
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CHICAGO — The Chicago Mercantile Exchange will launch futures for a new dairy contract, C.M.E. Cash-Settled Butter, on Monday, Sept. 19. The new contracts will be the exchange’s first dairy futures contract to trade exclusively on the C.M.E. Globex electronic trading platform.

"With this product, C.M.E. is now bringing butter contracts into the 21st century with electronic trading as well as by adapting the contract specifications to meet the needs of contemporary users," said John Harangody, director of C.M.E. Commodity Products.

The exchange’s Cash-Settled Butter futures are designed to meet the needs of food processors like ice cream producers with a liquid, cash-settled hedging mechanism. The Cash-Settled Butter futures will enable buyers to hedge their exposure to price fluctuations in butterfat. In addition, butter producers and other food industry participants will be able to manage their risk with the new contract.

The contract will be different from the exchange’s other butter futures contract in that the trade unit will be 20,000 lbs of Grade AA butter versus 40,000 lbs for the existing contract. The new contract will be cash settled based upon the U.S. Department of Agriculture’s monthly weighted average price in the U.S. for butter.

Modern Dairy Markets L.L.C. will be the market maker for the new contract, and will ensure liquidity and maintain a continuous, transparent and competitive market.

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