Name: Cheese futures.
Age: Minus several months. Longer in many cases. We’re talking futures contracts here.
Appearance: I suspect you know what cheese looks like.
What is a cheese future? Basically, you agree to pay a supplier a certain price for a lump of cheese at a future date. You are making a bet on trends in cheese prices.
How much cheese are you agreeing to buy? Contracts are for 20,000lb (9-tonne) blocks.
What if you can’t sell it? That’s a lot of cheese to have on your doorstep. I don’t think it works that way. Everything is settled in cash. There are also barrel cheese contracts, but let’s not complicate things.
Are you dodging the issue because you don’t really understand it? Look, if I understood this stuff, don’t you think I’d be making millions playing the cheddar market rather than earning peanuts writing pass notes?
Peanut futures? That’s a whole other ball game.
Are cheese futures big business, then? When the Chicago Mercantile Exchange – the world’s largest futures exchange – launched cheese futures contracts in 2010, speculators were slow to get in on the act. However, refinements to trading mechanisms in January 2020 helped to boost the market, while the pandemic has caused a big increase in trading.
Why? It introduced greater volatility into cheese buying, apparently. The Financial Times reports that trading volumes have risen sharply in anticipation of the easing of lockdown and the start of the US “grilling season”.
What’s grilling season? Americans love a barbecue – and every burger has to come with lashings of cheese.
So the end of lockdown is good for cheese futures? Perhaps I should start buying options on 20,000lb blocks of cheddar. Be wary. Prices on contracts due for delivery in June have eased this month. Cheese has performed very well in lockdown, with everyone getting takeaway pizzas and burgers, but the return to less cheese-based restaurant dining may reduce demand. These are the market crosswinds that we expert analysts have to navigate.
What other futures markets have done well in the pandemic? Orange juice has been sparkling, with consumers searching for a vitamin boost. Lemon markets have been zesty for the same reason. Coffee has been highly charged, wrong-footing traders who thought shop restrictions would reduce demand – we have upped consumption at home instead. And turmeric, ginger and garlic trading has been vigorous, as consumers turn to so-called “health halo” ingredients.
Not to be confused with: Bitcoin, the price of which has risen spectacularly during the pandemic.
Especially not to be confused with: Cannabis, which has also been doing well, but should not under any circumstances be mistaken for turmeric.
Do say: “It’s time to get out of commercial property and into wensleydale.”
Don’t say: “I smell trouble in the Stinking Bishop derivatives market.”