How Retail Cheese Prices Weather Market Volatility | WSJ Price Index

Summary

The Chicago Mercantile Exchange's cheddar cheese trading has experienced wild price swings, particularly due to the coronavirus pandemic's impact on demand. Despite these fluctuations, supermarket cheese prices have remained stable, partly due to 'price smoothing' strategies by retailers. The government's Farmers to Family program temporarily boosted cheese prices by purchasing dairy products. Artisanal creameries, bypassing wholesale markets through direct sales, have seen less impact from market volatility.

Takeaways

• 🧀 **Cheese Trading on CME**: The Chicago Mercantile Exchange hosts a 10-minute electronic trading session for blocks of American-made cheddar cheese every trading day at 11:00 a.m.
• 📉 **Impact of COVID-19**: The initial lockdowns due to the coronavirus pandemic led to a significant drop in cheese prices as schools and restaurants closed, affecting purchases.
• 🏪 **Stable Consumer Prices**: Despite fluctuations in wholesale prices, the retail price of cheese at supermarkets remained relatively stable compared to other food products.
• 📈 **Price Comparison**: The price of cheese has been more stable than ground beef, eggs, and apples as shown in the provided charts.
• 🔄 **Wholesale Price Swings**: Wholesale cheese prices on the CME's auction platform can be volatile, affecting the prices of 40-pound blocks and 500-pound barrels of cheddar.
• 🧀 **Cheese Uses**: Blocks of cheese are used for slicing and shredding, sold to grocery stores and restaurants, while barrels are primarily used for processed cheese products.
• 🌐 **Cheese Market Influence**: Cheese sellers across the country monitor the CME prices, especially for blocks, to gauge the market.
• 📊 **Price Smoothing**: Grocery stores use price smoothing strategies to avoid passing on rapid price increases to consumers, leading to a more stable retail price for cheese.
• 🍎 **Customer Expectations**: Customers may expect seasonal price fluctuations for products like apples but are more sensitive to frequent purchases like cheese, influencing retailers to keep prices stable.
• 🏭 **Artisanal Creameries**: Some artisanal creameries, like Eran Wajswol's, have thrived by selling directly to consumers and producing their own milk, bypassing the volatile wholesale markets.
• 🚚 **Supply Chain Pressures**: Despite holding steady on prices, artisanal creameries are feeling the pressures of supply chain issues and labor shortages, which may affect future pricing.

Q & A

What time does the Chicago Mercantile Exchange host electronic trading of cheddar cheese?

The Chicago Mercantile Exchange hosts electronic trading of cheddar cheese at 11:00 a.m. each trading day.

How have the last couple of years affected cheddar trading on the CME?

The last couple of years have seen some wild sessions in cheddar trading on the CME, with significant price swings attributed to events like the first coronavirus lockdowns.

What was the impact of the coronavirus lockdowns on the cheese market?

The coronavirus lockdowns led to schools and restaurants closing, which resulted in halting purchases and a notable drop in wholesale cheese prices.

How has the price of cheese at supermarkets compared to the CME price swings?

Despite the price swings on the CME, the price of cheese at supermarkets has remained relatively stable, with consumers experiencing less volatility.

What is the role of the Farmers to Family food box program in stabilizing cheese prices?

The Farmers to Family food box program helped stabilize cheese prices by purchasing $100 million a month in dairy products, including cheese, during the early months of the pandemic.

How does price smoothing affect the retail price of cheese?

Price smoothing allows grocery stores to absorb rapid price increases rather than passing all of them on to consumers, resulting in a smoother price effect at the retail level.

Why might grocery stores be hesitant to increase cheese prices significantly?

Grocery stores may be hesitant to increase cheese prices significantly because customers buy cheese more frequently and are more likely to notice price changes, which could deter purchases.

How does the seasonality of apples compare to the pricing of cheese?

Apples are grown seasonally, and customers may expect their prices to fluctuate throughout the year more than cheese, which is not seasonally grown and has more stable pricing expectations.

What advantage does an artisanal creamery have in terms of market stability?

An artisanal creamery like the one owned by Eran Wajswol can bypass volatile wholesale markets by producing their own milk and selling directly to consumers.

What challenges has the artisanal creamery faced in 2021?

In 2021, the artisanal creamery faced challenges such as labor shortages, which required the team to work longer hours to maintain production levels.

How has the supply chain pressure affected the artisanal creamery's pricing strategy?

The supply chain pressures have led the artisanal creamery to consider increasing the minimum purchase amounts and delivery prices, although they have not increased cheese prices for almost five years.