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Understanding and Using Milk Price Basis

Summary

Until just a few years ago dairy producers had no need or ability to manage price risk. During the early 1990’s, university and futures exchange representatives worked on developing and refining tools that the dairy industry could use to reduce price risk. The most successful tool to date has been the Class III cash settlement contract. Dairy producers need to understand the concept of basis to use the Class III contract as well as options and forward contracts that result from the futures market.