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Cheese Manufacturing Margins: Balancing Cooperative and Producer Interests

Cheese Manufacturing Margins: Balancing Cooperative and Producer Interests. Brian W. Gould Associate Professor Department of Agric. and Applied Economics University of Wisconsin-Madison. Daily CME Block Prices: 2005-2006. Initiated via request by Agri-Mark, Inc., Nov. 2005

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Cheese Manufacturing Margins: Balancing Cooperative and Producer Interests

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  1. Cheese Manufacturing Margins: Balancing Cooperative and Producer Interests Brian W. Gould Associate Professor Department of Agric. and Applied Economics University of Wisconsin-Madison

  2. Daily CME Block Prices: 2005-2006

  3. Initiated via request by Agri-Mark, Inc., Nov. 2005 • Change make allowances to account of higher production costs • Adjust protein price in Class III formula to recognize reduced value of whey butter • Reduce the 3¢ addition to NASS survey barrel cheddar price to 1.5¢ block • Hearing held over Jan. 24 – Jan. 27 period • Complete hearing record including exhibits available at:www.ams.usda.gov/dairy/proposals/classIII_IV_make_all.htm Emergency Federal Order Hearing

  4. Current and Proposed Make Allowances (¢/lb) CA-FO = California make allowance – Federal Order make allowance AM-FO = Agri-Mark make allowance – Federal Order make allowance AM-CA = Agri-Mark make allowance – Federal Order make allowance

  5. 2004 Dairy Product Plant Costs Source: Charles Ling, USDA Rural Development Cooperative Programs, 2006 and California Dept. of Food and Agriculture, 2005

  6. 2004 Dairy Product Plant Costs Source: Charles Ling, USDA Rural Development Cooperative Programs, 2006 and California Dept. of Food and Agriculture, 2005

  7. Cheesemaker Margins and Energy Costs Estimated Energy Costs (¢/lb of product) Source: 2004: Charles Ling, USDA Rural Development Cooperative Programs, 2006: Estimated from PPI: 1.969 adj. for Fuels and 1.156 for Elec.

  8. Recent Cheesemaker Gross Margins • We undertook an analysis of gross margins from cheese manufacture and effect of energy price increases • Federal Order Product Price Formulas and Cheesemaker Margins: A Closer Look by E.V. Jesse and B.W. Gould • Undertook this analysis in Oct. 2005 • Can be downloaded from the UW Dairy Marketing Website: www.aae.wisc.edu/future

  9. Recent Cheesemaker Gross Margins • We estimated cheesemaker gross margin over the 1991-2005 period • Gross margins are defined as value of sales of cheese and by-products (e.g., whey, butter, etc) • We recognize that actual margins will vary across plant because of scale, yield differences, production technologies and uniquely negotiated prices

  10. Recent Cheesemaker Gross Margins • Cheddar Cheese yield simulated via Van Slyke formula • 38% cheese moisture • 109% solids retention factor • 91.5% fat recovery • 82.93% true protein recovery • Milk composition • 3.5% BF • 2.99% protein • → cheese yield of 9.8 lbs. Constants Used in Van Slyke Formula Values assumed in current Class III

  11. Note: Total margin includes the value of cheese, butter and whey sales April. 1, 2003 Formulas Jan. 1, 2001 Formulas Total Margin Cheese Only Margin Jan. 1, 2000 Formulas

  12. Contact Information • Brian W. Gould: gould@aae.wisc.edu • Access the UW Dairy Marketing Web Site: www.aae.wisc.edu/future

  13. Cheese Manufacturing Margins: Balancing Cooperative and Producer Interests

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