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Dairy Marketing. Dr. Roger Ginder Econ 338 Fall 2007 Lecture #11. CHEESE PRICING. Bid/offer rules same as for butter on CME Daily cash trading Mon.-Fri. price change possible without transaction

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Dairy marketing

Dairy Marketing

Dr. Roger Ginder

Econ 338

Fall 2007

Lecture #11


Cheese pricing
CHEESE PRICING

  • Bid/offer rules same as for butter on CME

    • Daily cash trading Mon.-Fri.

    • price change possible without transaction

    • An uncovered offer or unfilled bid during the session can change the price even without a transaction

    • if no transaction occurs or no bids or offers are made the price does not change


Cheese pricing1
CHEESE PRICING

  • Similar to butter pricing

  • Up to 1998, it was based on wholesale price at National Cheese Exchange (NCE) Green Bay, Wisconsin

    • Only cash cheese market in U.S.

    • Forty trading members (represent 80% cheese market)

    • Trading for 1/2 hr. Friday a.m.

    • Trades only in 40# blocks and 500# barrels

    • Car lot quantities 33,000# or 42,000#

    • Prices FOB sellers warehouse on nearest rail siding

    • Prices do not include: transport, freight differentiation, moisture adjustments, barrel deposit


Cheese pricing2
CHEESE PRICING

  • Up to 1998, it was based on wholesale price at NCE Green Bay, Wisconsin

  • Farmers came to mistrust the NCE after market forces caused much wider fluctuations in prices in the mid—1990’s

  • Really due as much to the lack of government CCC activity in the markets removing surplus product as anything done by traders

  • Trading was moved to the CME where the oversight was thought to be better

  • CME had also established dairy futures contracts


Cheese pricing3
CHEESE PRICING

  • Blocks used for cutting packaging

  • Barrels used for further manufacturing or processing

  • CME prices used for pricing American type cheeses (incl. Cheddar,Colby, etc.)

  • Large or excessive supplies usually cause prices to rest at support level (Has not occurred since 2003.)

  • Also a “thin” market where only a small percentage of total volume is traded

  • Cheese plants usually sell under contract using NCE (Now CME) “opinion”


Cheese pricing4
CHEESE PRICING

  • Cheese prices also have a leveraged effect roughly 10# of cheese can be made from 100# milk

  • Change in cheese price of 1¢ causes approx. 10¢/cwt change in milk price

  • By-product values (whey) are becoming more important

    • less dumping

    • more sophisticated processing in some plants


Cme cash market session
CME Cash Market Session

  • Cash Trading from 10:45 am (CDT or CST) For Cheese

    • Daily trading for Blocks and Barrels

    • Bids, Offers, and Trades May be Made For Either Size at the Session

    • All Trades Must Be Settled With Product

  • Cash Trading From 11:05 am (CDT or CST) for Butter

    • Trading on Monday thru Friday

    • All Trades Must Be Settled With Product


Cme cash market session 7 18 07
CME Cash Market Session 7-18- 07

  • ---No Budget To Travel To Chicago

  • ---Transcript of Session From the CME Trading Chatroom

  • ----Audio of Session from E Dairy


Milk pricing by cheese plants
Milk Pricing By Cheese Plants

  • A Cheese Plant Purchase Milk From Producers and Manufactures Cheese

  • How Does the Plant Decide How Much to Pay For the Milk It Needs?

    • Pay What Everybody Else Pays

    • Pay As Little As Possible

    • Pay As Much As It Takes

    • Other


What information is needed to determine pay price of a cheese manufacturer
WHAT INFORMATION IS NEEDED TO DETERMINE PAY PRICE OF A CHEESE MANUFACTURER?

  • Product price / #

  • Product yield / cwt milk

  • By-product price / #

  • By-product yield / cwt milk

  • Manufacturing cost / cwt milk


Manufactured milk pricing based on manufactured products august september 2007
MANUFACTURED MILK PRICING BASED ON MANUFACTURED PRODUCTS CHEESE August—September 2007

  • Price of 40# block of cheddar cheese = $1.9300/lb

  • Value of dry whey = $.50/lb

  • Yield of cheese / cwt milk = 10.1/#

  • Yield of dry whey = 5.5#

  • Plant manufacturing cost = $1.31/cwt


Cheese manufacturer a s price calculation
CHEESE MANUFACTURER A’s CHEESE PRICE CALCULATION

  • Milk Price/cwt

  • Cheese @ $____ /# x 10.1#/cwt = $____

  • Plus Whey @ $____ /# x 5.5#/cwt = ____

  • Less Plant manufacturing cost/cwt = ____

  • Plant value of milk ____

  • Other Deductions

  • Less Hauling = .36

  • Less Assessment advertising = .15

  • Less Unit retain (Coop) = .05

  • Net farm price = $_____


Cheese manufacturer a s price calculation1
CHEESE MANUFACTURER A’s CHEESE PRICE CALCULATION

  • Milk Price/cwt

  • Cheese @ $1.9300/# x 10.1#/cwt = $19.49

  • Plus Whey @ $.50/# x 5.5#/cwt = $2.75

  • Less Plant manufacturing cost/cwt = $1.31

  • Plant value of milk $20.93

  • Other Deductions

  • Less Hauling = .36

  • Less Assessment advertising = .15

  • Less Unit retain (Coop) = .05

  • Net farm price = $20.37


Cheese manufacturer a s price calculation2
CHEESE MANUFACTURER A’s CHEESE PRICE CALCULATION

  • How would it differ if manufacturer A is more efficient than its competitor? Less efficient than the competitor?

  • How would the Grade B (Class III price) differ if manufacturer A subsidizes transportation costs of its producers by $.10/cwt?

  • 3. Who would be affected by this change? Why?



Questions
Questions? Products (9-17-07)


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