An Empirical Analysis of Pricing in the United States Cheese Industry: 2000-2010

52 Pages Posted: 16 Jun 2011  

Yuliya V. Bolotova

Cornell University

Andrew M. Novakovic

Cornell University

Date Written: June 14, 2011

Abstract

The U.S. cheese industry has historically used the organized Exchange spot cheese prices as reference prices in contract cheese market. Furthermore, the Exchange cheese prices have been influencing government-set prices of milk used in cheese manufacturing (i.e. Class III milk). The thinness of the Exchange spot cheese market has been raising concerns as to whether it adequately represents the cheese market fundamentals, which is important for the effective performance of cheese industry. The empirical evidence presented in the paper may suggest that due to the nature of cheese manufacturing, which basically depends on one input (milk), and a presence of government milk pricing, Class III milk price has become a key strategic variable in the modern cheese industry. While variation in cheese production and stock explains 4-15% of variation in the Exchange cheddar cheese price, variation in lagged Class III milk price explains 72% of variation in the Exchange cheddar cheese price. Furthermore, the effect of lagged Class III milk price on the Exchange cheddar cheese price and its variance tends to be stronger than the effect of cheese production and stock.

Keywords: ARCH, cheese pricing, dairy industry, government price regulation, price variance, regulated industries, spot market, thin market

Suggested Citation

Bolotova, Yuliya V. and Novakovic, Andrew M., An Empirical Analysis of Pricing in the United States Cheese Industry: 2000-2010 (June 14, 2011). Available at SSRN: https://ssrn.com/abstract=1865314 or http://dx.doi.org/10.2139/ssrn.1865314

Yuliya V. Bolotova (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

Andrew M. Novakovic

Cornell University ( email )

Ithaca, NY 14853
United States

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