When we talk about the price of U.S. oil, it’s usually WTI (West Texas Intermediate). Called a benchmark, WTI provides a reference point for markets in all kinds of crude.
Young mild Cheddar is the benchmark for cheese.
Cheddar Cheese Prices
We are eating more Cheddar cheese. Whereas in 1995, the average consumer ate 9.04 pounds, by 2018, we were up to 11.2 pounds. Now, with retail cheese sales up 70 percent from 2019 for March and April, we seem to be eating even more.
At the beginning of 2020, commodity traders recognized our growing preference for healthier cheese by separating Cheddar block cheese from the preservative-laden barrel cheese that its price had been averaged with for futures and options. Through electronic trading at the Chicago Mercantile Exchange, during a 10-minute session, supply and demand establish Cheddar’s benchmark price. Other cheeses like Parmesan and Mozzarella then follow.
The coronavirus pandemic lockdowns upset cheese markets. When restaurants and schools closed, institutional demand for Cheddar plunged. Although we were eating between 20 and 30 percent more cheese, still it did not compensate for the decrease. Compounded by inadequate storage space, a Cheddar glut pushed prices way down. During April, a low of $1 was so attractive that foreign buyers entered the market. Supported also by government subsidies to farmers, prices then started rising. And they continued rising when lockdowns were eased and restaurants and bars opened.
Sold in 40 pound blocks (the size of a carryon suitcase), Cheddar’s recent highs have moved closer to $2.81 a pound:
Do you remember the end of Trading Places? (Still a wonderful movie.) Having bribed someone to get a USDA orange crop report before it was publicly released, the Duke brothers start buying frozen concentrate orange juice futures because they expected prices to rise. Their objective? Buy low and then sell at a higher price.
The problem for the Duke Brothers was a fake USDA report. Created by Eddie Murphy and Dan Aykroyd, the fake report contained bad news about the crop. Expecting orange shortages, the Dukes and traders who copied them propelled prices skyward. At a high of $1.42, Murphy and Aykroyd started selling contracts. When the real report was released, prices plunged, and at 29 cents they started buying.
For a smile, do look at this two minute excerpt that shows commodity market trading before electronics took over:
Whether it’s cheddar or orange juice, hogs or oil, prices are at least partially set in these kinds of commodity markets.
Our Bottom Line: Supply and Demand
Then, when demand picked up and the curve moved to the right again. The result was a roller coaster in Cheddar cheese prices.
My sources and more: Thanks to the NY Times for alerting me to the spike in Cheddar cheese prices. From there, FT had more detail as did Hoard’s Dairyman. Our description of Trading Places was in a previous econlife post.