The sudden and fiery crash of cheese and milk prices early this year left producers looking for the culprit.

With milk prices based on cheese sales, some turned their sights on the limited trading on the Chicago Mercantile Exchange.

Peter Turk, a registered broker on the exchange, has a different explanation for the sudden downturn in prices.

A perfect storm whisked the cheese price up to $2.25 a pound, and a perfect storm slammed it down to $1.05, he said.

In the buildup, U.S. and world economies were running strong and U.S. spending was very high. Commodity prices were relatively low, while energy prices were on the rise. Energy-producing areas such as the Middle East, Russia, Asia and China gained wealth and an appetite for luxury items, including dairy products.

Droughts in dairy-producing Australia and New Zealand led to decreased production, and the U.S. dairy industry was able to gain market share. The U.S. dairy industry continued to expand to meet the need of the international market.

"Life was good, and then the bottom fell out," Turk said.

What came next wasn't pretty. "The sub-prime market came knocking," he said.

Unemployment was rising, while housing prices and consumer confidence were falling. Stock markets and money markets were falling. Energy prices were becoming unsustainable.

The commodity prices that had previously exploded were also falling. And U.S. dairy's aggressive expansion now had to compete with Australia and New Zealand production coming back on line at the same time dairy demand was declining globally.

The dairy collapse was neither mystery nor manipulation. It was two perfect storms, Turk said.

-- Carol Ryan Dumas

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