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Milk Prices Have Peaked, Says Analyst (DF) (HSY) (MJN)

May 23, 2014 10:40 AM EDT
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Wells Fargo analyst John Baumgartner discussed milk in a recent research note. In his view, June's Class I milk price drop confirms his peak milk thesis. Milk prices effect performance at Dean Foods Co. (NYSE: DF), Hershey Foods Corp. (NYSE: HSY), and Mead Johnson Nutrition Co. (NYSE: MJN).

"On 5/21, USDA reported a $22.86/cwt. Class I milk price vs our $23.48/cwt. forecast and -6.6% sequentially; the first drop since April 2013. Although still increasing on a yr/yr basis (+20.8%), the rate moderated vs last month’s +38%. Consistent with views expressed in our 4/1/14 Food: Dairy Costs at an Inflection?, bearish prices within downstream dairy commodities (nonfat dry milk and cheese) are beginning to pull the Class I fluid price lower," said Baumgartner.

"As a reminder, our cyclical price thesis remains predicated on two factors: 1) that a recovery of global milk supply will weaken demand for U.S. exports and 2) that record high prices will reduce domestic demand for key Class I inputs such as cheese and milk powder. We maintain our thesis that global milk prices have reached a cyclical peak and expect an improving cost position in the quarters ahead for key users including Dean Foods, Hershey, and Mead Johnson," he added.



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