How to Invest in Butter
Butter is a consumer staple that can be found in nearly all households. Its role as a traded commodity, however, is perhaps not as well-known. Butter can be a lucrative investment as it offers a play on consumption trends as well as the state of the overall agricultural world. Interest in butter as an investable asset is not nearly as significant as desire for other agricultural commodities. Investors looking for exposure to butter prices are able to invest in futures contracts or equities of butter producers, though the market for the commodity is not nearly as deep other agricultural markets.
Ways to Invest in Butter
There are 2 ways to invest in Butter: Futures and Stocks. Click on the tabs below to learn more about each alternative.
What are Butter Futures?
Although there is not a significant amount of interest in gaining exposure to butter, there are several options in the futures market that investors can choose from to play or hedge against the commodity. CME’s butter futures and cash-settled butter contracts are the most direct ways for investors to gain exposure: the former contract reflects the cash market supply, demand, and cold storage stocks fundamental information, while the latter is an electronically traded contract based on 20,000 pounds of Grade AA butter. There are also a number of other diary-based futures, like Milk Class IV, offered on the same exchange that will grant indirect exposure to butter prices.
How to Buy Butter Stocks
Unlike most commodities, it is quite challenging to gain indirect exposure to butter through an investment in companies that are engaged in the production and distribution of butter. For this particular commodity, there are very few publicly traded companies that base their operations exclusively on butter.
There are, however, some alternatives available. The largest, publicly traded dairy producer that derives at least some of its revenues from the production of butter is Dean Foods Co. (DF). Another option for investors is Feihe International, Inc. (ADY), which is an international distributor of dairy products in China. These stocks will seldom move in lock step with butter prices, but may be an interesting option for certain investors.
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