December 11, 2017

Barrels and Blocks Maintain Record Spread

 |  By: Know Your Market

Following the shutdown of the Green Bay cheese exchange in 1997 both block and barrel cheddar began trading at the Chicago Mercantile Exchange. Since that time the market has, more often than not, carried a normal relationship between blocks and barrels where block cheese is, on average, 3 to 4 cents higher in price than barrel cheese.

Of late that relationship has been put to the test. On November 29 blocks had a 9-cent premium over barrel cheese, the highest that spread had been since back in September. At that moment the markets turned and moved in opposite directions. Throughout December barrels have commanded more and more of a premium on almost a daily basis. On Monday's trade the spread widened to 21 1/4 cents, barrels trading over blocks. This sets a new record in the 20-year history of the CME. Prior to that, in December of 2007, the spread got to 15 1/2 cents. 

In Monday's trade, block cheese traded three loads, dropping 1 3/4 cents to $1.45 3/4. Barrels remained unchanged at $1.67, however they traded 36 loads, which underscores the demand that drives the inverted block-barrel spread. 

Butter followed blocks by dropping 3 cents to finish at $2.19. Grade A nonfat dry milk remained unchanged at 68 1/4 cents. 

Class III markets felt the pressure of a softer block trade, dropping 8 cents in the first half of 2018 average to $14.64 per cwt. Class IV markets saw little volume and dropped two cents in their average to $13.82.