CME to list Mid-Sized Options on BFP Milk beginning April 12

The Chicago Mercantile Exchange (CME) will launch mid-sized options on its successful basic formula price (BFP) milk contract, beginning Monday, April 12. The options, sized at one-half of one BFP milk futures contract and representing 100,000 pounds of milk, will provide additional flexibility for risk management in the dairy industry and will complement the CME's 50,000 and 200,000 pound options. The new 100,000-pound options will allow milk producers with a dairy herd of between 70 and 80 to use CME options to manage their financial risk in a cost-effective way. Additionally, the options can be used by participants in the USDA's Dairy Options Pilot Program (DOPP), who receive reimbursement of 80 percent of their premium costs for using BFP milk options as a risk management vehicle. The DOPP program is soon to begin a second round allowing dairy producers from approximately 80 counties in 24 states to hedge between 100,000 and 600,000 pounds of their milk production. Each mid-sized option will be quoted in cents per hundredweight (cwt.) and will have a minimum price increment of USD0.01 per cwt., valued at USD10.00. All 12 calendar months will be listed for trading, and will trade from 08:00 to 13:10 (Chicago time). The CME's BFP milk futures and options contracts are the world's most actively traded risk management instruments in the dairy industry. Open interest, or the number of contracts outstanding, stands at 6,400 positions. Each futures contract represents 200,000 pounds of milk, and options on the full 200,000-pound contract are also listed for trading. In addition, mini-options on BFP milk, sized at 50,000 pounds, allow smaller producers to manage their risk on the CME.