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Speculators Bet on Parity Milk Prices

December 27, 2012
By: Jim Dickrell, Dairy Today Editor

Speculators on the Chicago Mercantile Exchange are buying up out-of-the-money call options in anticipation of dairy price supports going to 75% of parity early next year.

If current Farm Law expires next Monday, the level of dairy price supports (currently at about $9/cwt) reverts to permanent, 1949 Farm Law. That law stipulates that dairy prices be supported at 75% to 90% of parity. In November, the parity price for milk was $52.10/cwt. So 75% of that would be $39.

"People are buying options from 1¢ to 30¢ that could make them $10/cwt. if we see parity pricing," report the editors of the FC Stone’s Dairy Group in today’s FC Stone Early Morning Report.

"While the odds are probably 1% or less of this materializing, it isn’t often a money manager has any chance of making that much on a trade and thus it would be foolish to not take some sort of punt on this."


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RELATED TOPICS: Dairy, Milk, Risk Management



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