Monday, January 17, 2011

Supply and Demand ... CME

(click on image to enlarge)

If you go to:

you will find most of the column is about margin insurance and just how great that is. Are you on the bandwagon or not?

My big problem really lies with one little part which will not go away:

But a more rational view (yes, admittedly, prices can be bid up and down on emotion) is the CME is fairly and generally reflective of supply and demand.

As can be seen from the above graph, covering 30 years, the CME has nothing to do with supply and demand. USDA's "Commercial Disappearances" reflects production and sales. Note though, it does not include imported dairy proteins.

The CME needs to be understood from an economic organizational perspective. The CME is a "leveraged price signal" from the powerful. Presently, there is no competitive milk or dairy product price. No matter how the data is collected, everyone will march lock step with the CME.

Furthermore, if margin insurance is in place, probably the CME will drop.


  1. John, what a great example of perception. Ten thousand or more farms still perceive the big three letter coop has the future of their farms at heart. What a tragic mistake, where has the honor of working for farmers and a thriving dairy community gone? Will the national zoo someday house a small heard of purebreds as a vanishing sub species? This children is how thousands of families use to teach work ethic, responsibility,the miracle of birth the reality of death and the grace of GOD. With this said many, to many people families,children and elderly go to sleep hungry here in each and every community. In all the glory of every jackass economist, in the shadows of the great value Walmart. If only value and efficiency could be measured in more then dollars.

  2. Of course it will drop. Just like with MILC, they don't have to pay a competitive price, the gov't will make up the difference. So the question is: is this a FARM subsidy or a PROCESSOR subsidy? Being the National Milk Processors Federation is pushing it I lean toward the latter.

  3. John--you forgot a paragraph in Dick____'s article.

    How's that tinfoil hat for keeping your ears warm?


    Well, maybe. The need for competitive Class III pricing comes from a strong belief, bordering on religious fanaticism among some producers, that the Chicago Mercantile Exchange (CME) is not a free and competitive market. Many of these producers believe the CME is a den of iniquity, manipulative speculators and processor cronies who set prices at their whim and only to their benefit.

  4. Dear mr. Religious fanticism, let's dicuss
    facts the cftc fined Dfa,killer whale made a fortune cftc has stated the cme is not a functioning market. How can one ignore the percentage of cheese traded let alone the above facts yes facts! Opinion is where I think your head is stuck. Pull it out clean it off and open your eyes jerk! Oh let me guess you don't know who CFTC is.

  5. Obviously doesn't know Rusty. The paragraph below his name is the one he was referring to, not his words. The CME is exactly what that paragraph states: "A den of inequity manipulated by a few speculators and processor cronies" Truer words were never spoken. God rocks!

  6. Margin insurance was created by DFA to circumvent the coop laws. This new program will allow them to legally steal money from the farmer under the guise of protecting them.