Editorial Comment Publisher/Editor

 

 

Price Volatility Off To A Good Start In 2023

Dick Groves
Publisher/Editor
Cheese Reporter

February 3, 2023


Price volatility has been a fact of life in the dairy industry for more than 30 years now (depending on how you define “volatility”), but it has also varied widely from year to year. And from month to month, week to week, and day to day, for that matter.

For the sake of discussion, we’ll define “volatility” as any period in which the price for 40-pound Cheddar blocks varies by six cents or more. We use that figure because, 40 years ago, the block price (or “Market Opinion”) at the old National Cheese Exchange ranged from a low of $1.3100 per pound to a high of $1.3675 per pound, or a difference of 5.75 cents.


There are, of course, some major differences between cash dairy markets here in 2023 and back in 1983, including the obvious point that trading at the NCE took place just once a week, while the CME’s cash market trades five days a week.

But even with trading taking place just once a week at the old NCE, there were all of four changes to the block price in 1983, and three of those were for less than one cent. The big change occurred on Dec. 2, 1983, when the block price dropped from $1.3650 per pound to $1.3100 per pound. That was big-time volatility back then.

One final note about that era at the NCE: 1983 volatility was pretty “normal” for that period; there were also only four changes in the block price in both 1981 and 1982 (when the block price ranged from $1.3525 to $1.3700 per pound and from $1.3525 to $1.3725 per pound, respectively).

So how does block price volatility back in the 1982-84 period compare to, say, 2022 or 2021? Well, in 2022, the block price ranged from a low of $1.7150 per pound on Aug. 29 to a high of $2.3975 on Apr. 18, a range of 68.25 cents.

Monthly average prices smoothed out that volatility somewhat; in 2022, the monthly average block price ranged from a low of $1.8104 per pound in August to a high of $2.3399 per pound in April, a range of 52.95 cents.

In 2021, the block price had ranged from a low of $1.4575 to a high of $1.9800 per pound, or a range of 52.25 cents, while the monthly block price average ranged from a low of $1.4978 to a high of $1.8930 per pound, a range of 39.52 cents per pound.

Obviously, prices are far more volatile today than they were 40 years ago, whether you’re looking at the annual range from low to high or the range of monthly averages.

And then there’s the day-to-day price changes. Using our earlier definition of volatility (when the block price varies by six cents or more), there was considerable volatility in the block market last year, with a total of 22 trading sessions in which the block price changed by six cents or more.

In 2021, when the block price range was lower, there were a total of 21 trading sessions in which the block price changed by six cents or more.
So how is cheese price volatility looking one month into 2023? Pretty volatile, compared with 2022 and 2021, and especially compared with 1983, 1982 and 1981.

Specifically, just during the 20 CME spot (cash) market trading sessions in January, there were a total of 10 sessions in which the block market changed by six cents or more. That’s close to half of all the trading sessions in all of 2021 that saw block price changes of six cents or more, and also almost half of all the 2022 trading sessions that saw such changes.

These January sessions were sprinkled throughout the month: there were two during the first week of the month, three during the second week, two during the third week, two during the fourth week and one during the two-day fifth week (this week).

Also, some of this volatility here in early 2023 has been pretty extreme. Specifically, of those 10 block price changes of six cents or more, four were changes of more than 10 cents. By comparison, of the 22 price changes of six cents or more last year, just two were changes of more than 10 cents.

The CME barrel price has also seen some extreme volatility thus far in 2023, with a total of five price changes of six cents or more during January, two of which were by 10 cents or more.

Only the CME butter market has been the picture of calm thus far in 2023; in January, there were eight trading sessions with no change in the butter price, and just one session in which the price changed by more than six cents.

That’s a big contrast to 2022’s CME butter market, where the price varied from a low of $2.38 to a high of $3.2675 per pound, or a range of 88.75 cents per pound; the monthly butter price average ranged from a low of $2.6196 to a high of $3.1792 per pound, a range of 55.96 cents per pound; and there were 29 changes of six cents or more.

What does this brief analysis say about price volatility for the remainder of 2023? Potentially, not all that much. Last year, there were two block price changes in January of six cents or more, none of which were for more than 10 cents; and another 20 during the next 11 months, including the two of more than 10 cents.

But in January of 2021, there were six changes of six cents or more in the block price, two of which were of more than 10 cents; and another 15 during the next 11 months, none of which were more than 10 cents.

From this, we can reach at least two conclusions: first, that cheese prices are far more volatile today than they were 40 years ago; and second, January’s extreme volatility won’t necessarily continue throughout 2023...

 

Dick Groves

Dick Groves has been publisher/editor of Cheese Reporter since 1989. He has over 45 years experience covering the dairy industry. His weekly editorial is read and referenced throughout the world.
For more information, call 608-316-3791 dgroves@cheesereporter.com
https://twitter.com/cheesereporter.


Recent Editorials written by Dick Groves.

Time to Get Engaged in Dietary Guidleines Process
Janaury 27, 2023

Future of Food, Including Dairy, Explored At CES 2023
January 13, 2023

117th Congress Left A Lot On The Table
January 6, 2023

Some Things The Dairy Industry Can Expect In 2023
December 30, 2022

Will Dairy Price Inflation Be A One-Year Wonder
December 23, 2022

FDA Evaluation Hits Home For Dairy Industry
December 16, 2022

Monthly Cheese Statistics Resemble Previous Annual Numbers
December 9, 2022

Hard to Understate Importance of Cheese to US Dairy Industry
December 2, 2022

'Science-Based' Is Sometimes in the Eye of the Beholder
November 25, 2022

Class II Milk Also Being Depooled in 2022
November 18, 2022

Easy Math: US Cheese Exports On Billion-Pound Pace
November 11, 2022

Do Dairy Product Prices Have A Long-Term Ceiling?
November 4, 2022

Consensus On Federal Order Reforms Shouldn't Be Necessary
October 21, 2022

An Unhealthy FDA Proposal On Definition of 'Healthy'
October 14, 2022

An Impressive Leap In Per Capita Cheese Consumption
October 7, 2022


 

 

 


What do you think about 
Dick Groves' Comments?*



Please tell us if you are a
Dairy product manufacturer 
Dairy marketer /importer/exporter
Milk producer
Supplier to manufacturer
s


 

 


Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to
dgroves @cheesereporter.com.