For many, the thought of lockdowns being eased across the world and things returning to a relative norm summons thoughts of freedom, perhaps even a new lease of life; but for others, opportunity looms and you’d be hard-pressed to predict this one…

A perfect storm of lockdown eating habits (more pizza and burgers → more cheese) and the upcoming US grilling season has caused a surge in cheese trading.

Contracts are traded like typical commodity futures on an exchange, with volume and delivery stipulations, most notably the CME’s Block Cheese Futures Contract which is traded in blocks - LARGE BLOCKS - at 9 metric tonnes (20,000 pounds) per contract. That’s a lot of cheeseburgers for the US grilling season! Open interest in these CME contracts has raced from 469 contracts at the start of the year to a hefty 3,200 contracts.

These contracts have in the past been mostly traded by large institutions in the food industry as well as specialist traders, but those who police these markets will be wary of speculators trying to get their fill. Regulators and exchanges will be concerned that volume volatility does not lead to price volatility given widespread consumption both by corporates and end-users who are reliant on prices remaining stable.

There are already mechanisms in place to control trading in these contracts. The CME imposes both a reporting level and a position limit per calendar month on their Block Cheese Futures contracts. That said, if trading in these contracts remains at heightened levels, perhaps their attention might be turned to reviewing these limits, especially in light of recent position limit changes made by the CFTC under the final rule on a number of legacy and new commodity contracts. If you’d like to find out more about these changes you can view our webinar on the subject here.

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