US raw milk volatility hurts Dean Foods' performance

Publish time: 12th August, 2014      Source:
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August 12, 2014



US raw milk volatility hurts Dean Foods'' performance




Dean Foods Co, the largest US milk processor, posted bigger-than-expected second-quarter loss and withdrew its full-year profit forecast.



The maker of Meadow Gold and Dean''s Milk said raw milk prices remained "unpredictable and volatile." In the quarter, US raw milk prices rose 6% from the first quarter and 31% from a year earlier to a record high of US$23.66 per hundred-weight.



"This is by far the most difficult operating environment in the history of the company," CEO Gregg Tanner said in a statement.



Milk sales remained weak in the second quarter, said Tanner. There was also margin pressure in products such as ice creams and cottage cheese as prices of butterfat, a key ingredient, jumped 32%.



US milkprices have been rising since 2008, when China started sourcing foreign-made milk powder and infant formula after the melamine-contamination incident. Years of drought in parts of the United States have also shrunk cattle herds to the lowest level in more than six decades.



Dean Foods'' operating loss totalled US$4 million in the second quarter ended June 30, compared to operating income of US$44 million in Q2 of 2013. Second quarter adjusted operating loss totalled US$6 million, compared to income of US$65 million in the same period last year. Q2 net loss narrowed to US$1 million in Q2 from $57 million a year earlier, when the company posted a big loss from discounted operations after selling its Morningstar division to Canada''s Saputo Inc.



Dean Foodshas been struggling to boost volumes amid tough competition and volatile commodity prices after losing a private label contract with Wal-Mart Stores Inc last year. The milk continues to progress in its accelerated cost reduction agenda. Since announcing in the first quarter of 2013 of its intention to close eight to twelve (10% to 15%) of its manufacturing facilities by mid-2014, the company has closed 12 plants, four of which occurred in June and July this year.



Tanner said there were "meaningful signs" that raw milk prices could fall later this year and early 2015 as US production is expected to rise about 3% in the second half, helped by lower cow feed prices.