What does it mean if the price of milk futures are going up?

It was reported in Bloomberg recently that price of milk futures are going up. What does this mean? Does it mean that if price of milk is expected to increase, more people are buying milk futures to hedge against the price rise?|||Yes, the way it works is traders gamble on what the price of something will be in the future. They do this with oil, gold, cows, milk, stocks, a lot of things.





The way it works is you might enter a contract to buy 100 gallons of milk at a price of $3 per gallon 1 month from now in the future. If it turns out that the actual price of milk at that point is $3.50, you can buy 100 gallons of milk for $3.00 and then turn around and sell them for $3.50. A profit of $50! Add a few zeros to the number of gallons and things start getting interesting.





Most futures traders are gamblers, and never actually expect to take the milk. Instead, 5 minutes before the point at which the contracts reach their expiration, the traders sell the futures contracts to actual milk distributors (like walmart) who want to take delivery of the milk itself. This way the traders can take their profits (or losses) and can get out of it.





Walmart might buy or sell futures to hedge against rising milk prices (as you said). They might space out the timing of their futures purchases so that they lock in prices for April, May, June, July, etc. They don't necessarily want all the milk at once.





A lot of companies hedge, a lot don't. It just depends on how the business operates and if they need to know for sure what prices will be in advance or not in order to get the financing they need to buy inventory. Again, some do, some don't. Some just like to gamble.|||You are correct.