For those who closely follow dairy product pricing, monitoring CME movement, and particularly the block and barrel cheese prices, is a critical component of their sales planning. Specifically, CME markets set the benchmark for dairy product pricing and provide a floor for the market. During the March 3 Hoard’s Dairyman DairyLivestream, commentators discussed how they view the CME and its influence on prices.
“I will say that we have to be careful with this because when we’re pricing this milk, it’s not the price for milk that comes down from the federal orders. It’s the minimum price for milk,” the University of Wisconsin-Madison’s Mark Stephenson said of CME prices.
“When we talk about the CME market, that is generally a bit of an ‘oops,’” elaborated Kurt Epprecht, vice president of Great Lakes Cheese. “Either you have too much product, you want to sell it, and no one wanted to buy it so it’s the market of last resort. Or if you need it, you’ve called around, you’ve asked for cheese, there isn’t any readily available, and you put in a buy order.”
Don’t confuse its purpose
While the CME does provide a sales avenue for those marketing dairy products, that is not its primary purpose. As Stephenson described it during the webcast, the CME is meant to set a floor and provide buyers with a benchmark.
“If you think that price isn’t right, either too high or too low, you can challenge it,” he detailed. “If you think it’s too high, let’s bring some cheese to the marketplace and try to sell it. If you think it’s too low, let’s try to buy some cheese and move the price around. That provides a method for everyone to use that price as a major benchmark.
“In my opinion, the single most important benchmark to our dairy industry in regard to what’s going on, on our end is the price on the CME for cheese,” he continued.
When the CME is properly viewed through this lens, it allows markets room to maneuver and keep product moving.
“You can’t have a minimum price that’s higher than a market clearing level,” Stephenson said. “If it’s a little bit below that, premiums can step in to fill in the gap. You have to give the markets a little bit of room to maneuver because no one is smart enough to set the price for milk.”
An ongoing series of events
The next broadcast of DairyLivestream will be on Wednesday, March 24 at 11 a.m. CST. Each episode is designed for panelists to answer over 30 minutes of audience questions. If you haven’t joined a DairyLivestream broadcast yet, register here. Registering once registers you for all future events.
