Creating Synthetic Cheese Futures: A Method for Matching Cash and Futures Prices in Dairy

摘要

A critical issue in understanding relationships between cash and futures markets is identifying the relevant and comparable cash and futures prices used in the analysis. In dairy markets, a problem arises from the simple fact that there exists no daily cash market for milk. The focal dairy cash market is the spot market for cheddar cheese at the Chicago Mercantile Exchange, while cheese futures contracts were only recently developed. In this article, we use a deterministic relationship between regulated prices for Class III milk and wholesale prices for cheese, dry whey, and butter to develop synthetic cheese futures that approximate cheese futures prices since 2000. Based on the measured accuracy of the synthetic cheese futures, we suggest this series can be paired with cash cheese prices and used in analysis of price dynamics between cash and futures dairy markets.