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Cheese market vulnerable to price manipulation, impacting milkWASHINGTON (AP)--Thin trading on the spot cheese market makes it ripe for manipulation, and that could affect the price of milk and other dairy products, the investigative arm of Congress said Thursday. The warning from the Government Accountability Office comes as block cheddar cheese reached $1.95 a pound July 5 on the Chicago Mercantile Exchange, up 67 percent from $1.17 a pound a year ago. Industry observers attribute the price surge to strong demand and higher milk prices. Because cheddar is the benchmark for mozzarella and other cheeses, some big pizza chains, including Yum Brands Inc.'s Pizza Hut and Papa John's International Inc., already have responded by raising their prices. There are few active cheese traders at the CME and the volume of cheese that changes hands is small, the GAO said, making it susceptible to price manipulation. Less than 2 percent of all cheddar cheese made in the United States is traded at the CME, among only 30 participants, which range from dairy cooperatives to large companies. The GAO investigation came at the request of several farm-state senators who were concerned about the CME's vulnerability to price distortions. The agency found that the 1997 transfer of spot cheese trading to the CME, from the National Cheese Exchange in Green Bay, Wis., where allegations of price manipulation also surfaced, resulted in greater oversight by the CME as well as the Commodity Futures Trading Commission. But otherwise, the structure of the market is largely the same, the report said. Sen. Russ Feingold, D-WI, one of the five senators who requested the study, called on the department to "improve its oversight of the prices it receives in order to better protect our hardworking dairy farmers." Most cheese in the United States is traded through long-term contracts, which use the CME price as a reference price. And the U.S. Department of Agriculture, as part of a farm price support program, sets a minimum price of unprocessed milk that is based in part on the price of cheese traded at the CME. Date: 7/19/07
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