Price volatility has been a reality of the global dairy market, and the bad news is that 2016 will be no exception. The good news however, for buyers who wish to ensure uninterrupted supply of U.S. dairy products, is that risk management tools exist to manage their financial exposure.

These tools are not just for suppliers to use. International buyers can also proactively manage their risk to minimize the impact of unpredictable events and price adjustments. Indeed U.S. dairy customers looking to secure a consistent supply of products at a stable, controllable price should work with a broker to look into available methods that will help protect their business against volatility and extend periods of favorable pricing.

To that end, the U.S. Dairy Export Council created a short brochure introducing the concept of risk management. This U.S. Dairy Risk Management Brochure is a must-read tool to plan for the year ahead. The brochure explains the need for risk management, lays out the different methods and details the role of the Chicago Mercantile Exchange (CME) in global dairy trade.

The CME being the marketplace where U.S. dairy Futures and Options contracts are traded is also the world’s leading and most diverse derivatives marketplace. Cheese, whey, milk, butter and milk powders all are traded on the CME, providing two functions:

1. Price Discovery: All bids, offers and trades are made public (which enables price discovery), while the identity of the buyers and sellers are kept private at all times.

2. Risk Transfer: The CME allows the transfer of risk inherent from one business to an anonymous party by purchasing or selling a futures contract (or option) when a promising price is uncovered.

In order to access the CME, buyers must go through a licensed and regulated broker. Interested customers can search for such a service provider in our U.S. Dairy Supplier Directory.

For a web version of this information, readers may visit our risk management section on ThinkUSAdairy.org.