- [Reporter] Each trading day at 11:00 a.m.,
the Chicago Mercantile Exchange, or CME,
host 10 minutes of electronic trading of these,
blocks of wholesale America- made cheddar cheese.
Like some other food products,
the last couple of years of cheddar trading
have seen some wild sessions.
For example, here's a drop that analysts attribute
to the first coronavirus lockdowns,
when schools and restaurants started closing
and halting purchases.
But during these swings on the CME,
the price of cheese here,
at the supermarket, held pretty stable.
In fact, if you chart it out,
the price consumers pay for cheese has stayed more steady
than some other common foods.
Here's the chains for ground beef and eggs and apples,
and here's cheese.
There has been some inflation,
but the swings you see on the CME are largely absent.
With the price of many foods on the rise right now,
we wanted to better understand why,
even with the choppy wholesale prices,
has the price of much of the cheese we buy
at the store stayed pretty stable?
The wild swings in wholesale cheese prices play out
on the CME's auction platform.
Traders buy and sell those 40-pound blocks
and 500-pound barrels of cheddar.
The blocks are sliced and shredded
and sold to grocery stores, restaurants, and others.
And the barrels are primarily turned
into processed cheese products.
These are the only cheese traded on commodity markets
and cheese sellers all over the country watch the prices,
especially of the blocks.
- Okay, so I make Swiss cheese.
There's no stock market for Swiss cheese,
there's no futures market for Swiss cheese,
but can I use the insight I got on cheddar pricing
to say something about what Swiss is worth?
- [Reporter] To better understand the wholesale swings,
we spoke to Andrew Novakovic, an agricultural economist
who's been studying these markets for over 40 years.
- If I think, for example,
Swiss should always be worth more than cheddar,
at least a little bit, if the price of cheddar goes up,
well, maybe the price of Swiss that I charge should go up.
- [Reporter] So when the price of cheddar swings
like it did in 2020,
so does the wholesale price of other cheeses.
Again, here's where bulk orders dried up early last year.
And around here,
the government started the Farmers to Family
food box program to help farmers weather the storm.
It included a promise to buy a $100 million a month
in dairy products, including cheese.
- Thank you. Have a good day.
- There were several different types of baskets
that they authorized.
There was a dairy basket and a milk basket.
And they paid to acquire those products,
put them in a paper bag or a cardboard box,
give them to local food distribution centers.
We saw the price of cheese absolutely explode
for a short period of time
because there was this requirement
to get this huge volume of cheese in a very narrow window.
- [Reporter] After a few months of shocks,
prices returned to a bit lower than what they were
right before the pandemic.
As these programs ran their course,
influencing more sharp swings,
customers were picking up vast quantities
of cheese at stores,
which brings us to the question at hand.
Why on average are these swings hard to notice
in the dairy aisle?
Novakovic attributes it in part
to something called price smoothing.
- When prices are increasing rapidly for some reason,
grocery stores tend to say
we don't want to reflect all of that.
They anticipate being able to recoup that margin
at some point when prices recede.
So instead of seeing quite the same rollercoaster
at the retail level,
generally consumers see a much smoother effect.
- [Reporter] Novakavic says says customer expectations
can also influence pricing strategies.
Take apples.
Because they're grown seasonally,
customers may expect them to go up and down
throughout the year more than something like cheese.
Also cheese is perishable.
Customers may buy it more frequently than other foods
and would be more likely to notice price changes,
another incentive for groceries to keep prices stable.
While some in the cheese business
have had to weather big market swings,
a smaller section of the industry has managed
to bypass much of the storm.
Eran Wajswol, who owns an artisanal creamery,
told us that while the CME was swinging in 2020,
his business was thriving.
- 2020 was one of our best years
because of farm markets and direct sales.
The public do not want to go to retail stores.
- [Reporter] Producing their own milk
and selling direct to consumers allows some artisans
to skip the wild wholesale markets.
- We are basically a farmstead creamery,
which means we make most of our own milk onsite.
We age our cheeses in a cave onsite and we're original.
- Wajs said that while he's protected
from some market conditions,
2021 has still presented challenges.
- '21 is rough because of labor.
We're producing and selling everything we make,
but a few of us are working longer hours
to make the same stuff
because we can't find enough people to make it.
- Wajs said that while he's managed to hold steady
on prices so far,
he's feeling this year's supply chain pressures
like much of the rest of the economy.
- The way we are doing it is sometime increasing the minimum
that the customer has to buy from us,
changing delivery minimum, increasing delivery prices,
trying to hold...
I don't know how long we can hold on.
If it continues the way it's continuing,
it's gonna have to get a boost,
but we don't like to increase prices,
and we haven't probably in cheese for almost five years.
- [Reporter] As the economy continues to see supply
and production challenges,
the price of cheese on commodity markets
and in the store remains uncertain.
(quiet pensive music)