Class IV milk is tied to the federal order pricing structure for butter and nonfat dry milk. The CME already trades futures and options on Class III milk, which is used to manufacture cheese.
"We are adding Class IV milk contracts, at the industry's request, to extend price coverage protection to both producers and industry firms whose profit margin is adversely affected by the price volatility of butterfat," said Bob Prosi, Chairman of the Dairy Products Committee and a member of the CME Board. "Industry advisors believe our current milk contract is useful but also want a Class IV milk contract that will help bridge the gap between the price variability of the protein and butterfat components used in the manufacturing of many dairy products."
The Class IV milk contract mirrors the specifications of the Class III milk contract with the exception of the formulas that are used in the method of cash settlement. Each contract represents 200,000 pounds of milk, quoted in U.S. dollars per hundredweight (cwt), and has a minimum price increment of $.01 per cwt, valued at $20 per contract. All calendar months will be listed for trading and will trade via open outcry from 9:00 a.m. to 1:10 p.m. (Central Time).
The Class IV milk contract will be cash settled based on the United States Department of Agriculture's (USDA) Class IV price for milk used in manufacturing butter/powder at 3.5 percent butterfat for fluid milk for that particular month.
The Chicago Mercantile Exchange offers a variety of futures and options products on livestock, dairy and forest products. As part of its agricultural complex, the CME trades contracts on live cattle, feeder cattle, stocker cattle, boneless beef and beef trimmings, lean hogs, pork bellies, pork cutout, milk, butter, cheddar cheese, nonfat dry milk, dry whey, lumber and oriented strand board.
