Spot Cheese Market: Market Oversight Has Increased, but Concerns Remain about Potential Manipulation
Highlights
The Chicago Mercantile Exchange (CME) is home to the spot cheddar cheese market, which impacts the prices of virtually all cheese traded in the United States, producer milk prices, and milk futures contracts. The spot cheese market, formerly the National Cheese Exchange (NCE) in Wisconsin, has been and continues to be the subject of concerns about price manipulation. GAO was asked to examine (1) the market's structure and ongoing concerns about price manipulation; (2) market oversight and efforts to address potential manipulation; and (3) how the market impacts federal milk pricing. In response, GAO compared the markets at NCE and CME, analyzed trading data, collected information about the Commodity Futures Trading Commission's (CFTC) oversight, and met with industry participants, academics, and agency officials.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Agriculture | As USDA continues to hold hearings on a variety of issues, including the Class III milk pricing formula, we acknowledge that there may be a variety of proposals to consider. To improve the timeliness of reported cheese prices and reduce redundancy that exists in the National Agricultural Statistical Service (NASS) survey of cheddar cheese, the Secretary of USDA should direct the Administrator, Agricultural Marketing Service (AMS) to give serious consideration to all proposals, in consultation with the industry, including the industry proposal to use the CME spot cheese market prices instead of the NASS survey of cheese prices in the minimum federal milk pricing formula. |
Closed – Implemented
The Agricultural Marketing Service (AMS) of USDA issued a decision in June 2008 regarding various proposals that were brought forward at field hearings regarding the Class III milk pricing formula. These proposals included the industry proposal to use CME spot cheese market prices instead of NASS survey of cheese prices in the minimum federal milk pricing formula. In the federal register, AMS described the information it considered for each of the proposals and why it made the decision that it did regarding each proposal.
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| Department of Agriculture | If USDA continues to use the NASS survey of cheese prices, the Secretary of USDA should direct the Administrator, AMS, to implement in a timely manner a program to audit data reported to NASS in its survey of cheese prices. |
Closed – Implemented
The Agricultural Marketing Service at USDA implemented a program to audit data reported to NASS in its survey of cheese prices. In particular, in a final rule documented in the federal register on June 17, 2008, USDA provided a description of the program including criteria for which reporting entities (those that provide the cheese price data) would be audited and what the audit would include.
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