Does the National Agricultural Statistics Service cheese plant survey price result in an average basic formula price that”s lower than Chicago Mercantile Exchange prices would produce? According to researchers at the University of Wisconsin-Madison, as long as the market continues to rise and fall, the BFP may average out the same no matter which is used.

Brian Gould and Bob Cropp, extension dairy marketing specialists in the College of Agricultural and Life Sciences, found that the direction that cheese prices are headed seems to influence whether the NASS BFP is lower or higher than the CME BFP.

“In June, July and August if the CME prices would have been used the BFP would have been higher than the actual BFP,” said Cropp. “For September, NASS data resulted in a 40-cent higher BFP than if the CME would have been used.”

According to the researchers, this indicates that if the market is going down, BFP from NASS data will be higher than BFP from CME data. On the other hand, if the market is going up, BFP from NASS data will be lower than BFP from CME data. For this reason, Cropp and Gould believe a year”s worth of data must be available before an average of BFP derived from NASS data can be compared with an average of BFP derived from CME data.

The controversy over which price data to use started when pricing activities were transferred to the CME after the demise of the National Cheese Exchange in April 1997. At that time the U.S. Department of Agriculture decided to use NASS cheese plant survey data rather than CME cheese prices to calculate BFP.

Adding to the controversy, states that don”t participate in federal milk orders, such as California, are included in the NASS survey. Their inclusion may be causing a difference in the cheese survey data, since their cheese plants sell cheese at lower prices. According to Cropp, their inclusion may have some effect on differences between NASS prices and CME prices, but since California”s cheese is marketed nationally and can be traded on the CME it should have an impact on prices at the CME as well.

In fact, according to the researchers, it is not the cheese price levels themselves that influence the monthly BFP values. It is the change in cheese prices over consecutive months that impacts the change in BFP, due to how BFP is calculated.

This means that even if the monthly average of NASS and CME cheese prices were different, but they changed the same amount, the change in milk value used for cheese would remain the same since the system for calculating the base month is the same. The base month is calculated using the amount actually paid the previous month for Grade B milk by 170 plants in Minnesota and Wisconsin.

Then why are the prices from the NASS survey lagging behind the prices experienced on the CME? According to the researchers, the NASS survey prices may be higher or lower than the CME prices because of the way the NASS cheese price survey is conducted.

The survey data needed to calculate BFP are released the fifth of every month. So some months will have four weeks” worth of published data, while other months will have five weeks.” For example, the BFP released on Nov. 5 will include the weeks of Oct. 3, 10, 17 and 24. The BFP released on Dec. 5 will include the weeks of Oct. 31 and Nov. 7, 14, 21, and 28. “During periods of dramatic upswings or down turns in cheese prices, this can result in substantial differences in BFP values when based on the NASS survey versus the CME cash market,” Cropp said.