Dean Foods Co. (DF), the largest U.S. dairy processor, tumbled the most in eight months after the U.S. Department of Agriculture reduced its production estimate for raw milk and raised its price forecast.
U.S. raw-milk production this year and next will be lower than a June forecast and prices will be higher as a drought in the U.S. Midwest increases the cost of animal feed and encourages “a more rapid decline in the cow herd,” the USDA said.
The share-price decline “is certainly related to the movement in corn and how people are linking that to increasing milk prices,” Amit Sharma, a New York-based analyst for BMO Capital Markets who rates the shares a buy, said today in a telephone interview. “We will not be in a declining milk price environment.”
Dean’s Fresh-Dairy Direct unit, which processes raw milk into products for its own brands and for other labels, is the company’s largest by sales. Rising raw-milk prices indicate higher costs for dairy processors such as Dean, Akshay Jagdale, a New York-based analyst for KeyBanc Capital Markets, said in a telephone interview.
Corn futures in Chicago touched $7.48 a bushel today, the highest for the most-active contract since Sept. 13, after the USDA cut its domestic production estimate by 12 percent one month after predicting a record harvest. The U.S. is the world’s largest corn grower and exporter.
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