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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 PRODUCTSAugust—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 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 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 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?
slide15
Grade B Producer Level Milk Pricing Based on Manufactured Products (9-17-07)
    • Price of butter / # = $1.3700
    • Price of nonfat dry milk = $1.9600
    • Butter yield/cwt milk = 4.48#
    • Nonfat dry milk yield/cwt milk = 8.5#
    • Manufacturing cost/cwt = $1.21
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