News

Dairy co-op's influence on milk and cheese markets under question

December 29, 2004

Chicago Tribune: With timed trades through Chicago's Mercantile Exchange, Dairy Farmers of America's Gary Hanman has found a way to support cheese prices, earning farmers an extra $1.3 billion this year.

Tucked at the back of the chaotic trading floor of the Chicago Mercantile Exchange, behind the flashing electronic signs that show the prices of pork belly futures and foreign currencies, traders with telephones pressed to their ears call out bids that are then scribbled on a white board labeled "Spot Cheese" in magic marker.

You can thank them for setting the price of a gallon of milk.

The obscure cheese exchange opens with the blare of a siren each trading day at 10:45 a.m. and closes about 15 minutes later. Some days there are no trades. But the low-tech methods and limited trading don't reflect the huge influence of the exchange. The dairy industry uses the quotes for the price of cheese on the exchange to set raw milk prices, in much the same way the financial industry uses benchmarks like the prime rate to set interest rates for everything from home equity loans to credit cards.

The trouble is, the cheese exchange is a secretive operation that is essentially unregulated and heavily influenced by a key industry insider who has a huge stake in how much dairy farmers are paid for the milk, which in turn affects how much consumers pay for a gallon at their local store.

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* Editor's note: Any pizza operator who has ever questioned whether cheese prices are being manipulated is strongly encouraged to read this piece in its entirety.