| MMM 381 | November 5, 1998 |
The volume of trading in the Basic Formula Price (BFP) futures and options is picking up. On October 30, CME futures open interest reached a record 2,411 contracts. On November 2, BFP options open interest also rose to a record 2,379 contracts.
The BFP futures and options market is still a thin market. For example, current open interest in corn futures contracts is about 340,000: in hogs, open interest is about 100,000.
With each BFP contract representing four tanker loads or 200,000 lbs of milk, combined open interest represents almost one billion pounds of milk--an impressive figure but well under 1 percent of national annual production.
Still, with several hundred contracts traded each day, the BFP futures and options are a lot closer to becoming a viable forward pricing mechanism for producers, co-ops and processors.
Yesterday, BFP futures on the CME closed at the following levels:
November $16.49 December $14.88 January $13.43
Producers in the Carolina order would use the November BFP to price January delivers, December for February, etc., becauise of the two month lag between the BFP and the resulting Class I price.
In a number of states, groups of dairymen have formed marketing clubs to learn more about these relatively new pricing tools and, in some cases, engage in actual trading. Producers interested in joining such a group should contact their local extension agent or area dairy agent.
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