Monday, May 24, 2010


(click on image to enlarge)

If you go back to the post on Butter (May 21, 2010) a reader, Ed Maltby, perhaps, said:

As a member of the committee I can flatly deny that the CME is not part of the discussions of this committee. It is being discussed in some depth and the input is not coming just from NMPF and IDFA.

I suspect that all I am doing regarding the Dairy Industry Advisory Committee (DIAC)is calling a spade a spade.

Look at the minutes of the first meeting where the CME was "discussed in some depth":

The CME is mentioned a total of five times.

At line 482, "Price discovery is determined using CME futures settlement prices." This mentioned in relationship to the proposed "insurance" program. By the way, there are only two products in which a "thin" cash market is used to determine "futures" prices. One is natural gas and the other is dairy.

Then on line 515 Will Francis states correctly, well almost, that California uses the CME, rather than NASS to determine minimum farm prices. California uses a survey for NFDM because, it is obvious to anyone that almost no NFDM is traded on the CME.

On line 853 is the real smoke screen, which tells everyone the USDA is not serious about looking at the CME:

A question was asked about the affects(sic) of CME prices on producer prices. Larry Salathe, from the USDA Office of the Chief Economist responded that USDA uses prices from NASS surveys to determine minimum classified prices. Mr. Salathe stated that the Commodity Futures Trading Commission may have jurisdiction over CME spot market operations since the spot markets have effects on futures prices.

Shameful and shameless at the same time.

If you look at the above graph, (farm milk is divided by ten to give normal cheese yield) what should be obvious to anyone is the relationship of the CME to farm milk prices. There are two exceptions. The first is in 2004, when DFA ran up block price and then depooled the milk so the end result of the run-up never appeared in the farm milk check.

The second, came when the NFDM price was misreported and then after the correction rose dramatically.

The whole ball of wax constituting the problems with farm milk pricing are buried in the nearly anonymous games played at the CME.

Here's a question for the DIAC; should a corporation which has nothing, absolutely nothing to do with butter,be allowed to trade (sell) butter on the CME, which in turn sets the bf part of farm milk price.

I am not trashing the committee. I am simply saying they will never get to the bottom or reveal any new information about what all apologist for the powerful call the "market."

Time will tell but, for the moment, I say it is an outrage - plain and simple.


  1. Thanks John. Well said and correct. The minutes tell the story.

  2. California uses Dairy America to set NFDM, and the CME for butterfat. Nothing worldwide compares to the California NFDM "weighted average".

  3. The only logical place to operate the CME is in a Chicago jail cell. It is an outrage and will not change and long as the "good ole boys" have any say. We need to get over big vs. small, that arguement makes no sense- there is room for all if we can get paid for what we produce so well!!

  4. John
    Unfortunately the minutes can not accurately reflect the 3 days of meetings plus sub-committee conference calls and emails where the committee has looked at and discussed the CME even to the extent of the definition of a thin market. Minutes are by nature a summary of what has been said and do not always reflect the time spent and many questions that were asked on different topics.
    We all know the problems and the committee is looking to build some solutions and recommendations for change.
    The packet that came in the mail and by email today is full of proposals, ideas and analysis from across the country.
    I know the committee would welcome yours and anybody else ideas for solutions either regulatory or legislative.
    None of us know if the committee's recommendations will be acted on or whether the various vested interests that have a strong lobby in DC will strong arm their agenda through, but I can guarantee to you that this committee of knowledgeable dairy folks are committed to examining all the issues, looking at root causes and ensuring that the right questions are asked.

    It maybe that you are right and nothing will come of the committee or its recommendations, history is not on our side, but I'd prefer to seize the opportunity and work hard to make full use of the access we have to the Secretary and the ability to ask as many questions of USDA and others.
    My future of my grandchildren require it
    Its about time to settle down with a glass of milk and continue reading.
    Ed Maltby

  5. Ed makes good points and appears to be a realist. However the CME is used to set farm pricing, regardless of what anybody says, and there are proven instances of manipulation so unless there is change away from the CME there will be no change. Also worth mentioning is the scary prospect of cheese futures.