The Cheese Economy

Published on: 13:56PM Nov 13, 2008
The chart of the week is the CME block and international cheese markets. The key support level (meaning that the markets have a tendency to stabilize or move higher once they descend to a price point) for CME cheese has been roughly $1.60 per pound for the last 18 months or so. In fact, the CME block and barrel markets have not traded appreciably below $1.60 since April of last year. But as stated in the latest issue of the Weekly Commodity Report, there are growing expectations that the CME block and barrel markets could experience some significant declines in the coming weeks perhaps below the $1.60 level.  What’s fueling these expectations? Most notably are the international cheese market and the US dollar. Part of the reason the US dairy industry has experienced solid market gains during the last 18 months has been due to a surge in US dairy exports. And as the chart reflects, the CME block cheese market for the better part of this year has traded at a significant discount to the international cheese market. But with the recent appreciation of the US dollar, the discount that the US cheese markets have enjoyed has evaporated. That could be very bearish for US cheese exports unless US cheese prices can adjust to enjoy the discount to the international market again.  
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