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    Cheap butter for everyone!

    1 Nov 2017,

    Butter fewer is going around at least some parts of Europe. Somewhere the price has grown by 100%, in other places there is a lack of butter in the stores. In order to keep my blog up with the latest trends, I’m going to analyze butter today. I will try to analyze the market as I normally do with other commodities:)

    It might be surprising for someone, but butter is really traded on the stock market. You can find it, for example, at the CME Group under the CB (Cash-settled Butter) ticker. I have to mention that this is the butter in USA , whose price is not related to the price of butter in Europe. Contract specifications are:

    • contract size: 20,000 pounds butter (9 tons)
    • price unit: cents per pound
    • point value: $ 200

    Technical analysis

    Here in Central Europe we had to get over the fact that the price of butter increased by almost 100%. Now I mean the butter we use in our kitchens, of course. However, on the US stock market, the situation is quite different. American butter, on the contrary, has fallen by about 18% in the last few months. But the price has recently hit a support around 230 cents, and there is also a sign of double bottom.

     

     

    COT analysis

    Let´s have a look at the group of hedgers and specifically on the net positions (i.e. the difference between long and short positions). From the last two years point of view of, the red curve is at the local maximum. Hedgers obviously buy a lot of butter because they consider it cheap. When we connect two previous similar situations with the price (see graph), we get to the price minima. So, the current mood on the market suggests that cheap butter on the US stock market may also come to its end.

     

     

    However, a group of large speculators is not as positive when it comes to rising butter prices. This year, net positions showed relatively large fluctuations, but currently the curve is roughly in the middle. It does not indicate either growth or a fall in price.

     

     

    Market Structure

    Term structure currently indicates normal market conditions, i.e. contango – more distant contracts are more expensive.

     

     

    But in the case of butter market, contango is not as common as in the case of corn for example. The contango histogram shows the presence of contango and backwardation roughly 50:50. We can see this also directly on the development of contango. A strong backwardation occurred between 2014 and 2015.

     

     

     

    Seasonality

    Let’s take a look at those few years, during which butter has been traded on the stock market. In the last two years, the price had been always growing in the upcoming period. Perhaps this growth is due to increased demand for upcoming Christmas holidays 🙂

     

     

    Conclusion

    So, if I should summarize it, I think the price of butter will go up. On the chart, we can see the support plus a double bottom, the hedgers buy hard and the Christmas season is approaching.

    Today, of course, it was something for fun, at least we have repeated a bit of theory. Butter market is not liquid, so it’s not very popular among traders. And definitely not interesting for me as for a spread trader. It is interesting, however, that COT still works well here and I will follow if it works even this time. 🙂

     

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