Dean Foods 4Q13 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

An unprecedented dairy environment

“Before turning to our results I wanted also take a moment to update you on the increasingly challenging and unprecedented dairy commodity landscape. Looking back on 2013 particularly over the second half it was a very challenging year as domestic raw milk prices continued to be meaningfully impacted by global developments in ways that we had not seen previously.”

Powder prices highest since 2007

“Through November the U.S. has exported over 1.1 billion pails of powder which represents a 24% increase compared to last year’s record year. At current levels powder prices are at their highest levels since the fall of 2007.”

Dramatic price inflation in Cheese

“Recently the domestic cheese market has experienced dramatic price inflation at the CME as the increased exports, decreased imports and higher milk utilization in class four butter and powder products have led to tightness in the cheese market. At current levels CME’s spot cheese prices have been fluctuating near or above all time high.”

Chinese causing the price increases

“All major U.S. dairy product export volumes have experienced meaningful year-over-year increases in 2013 with China leading the way in terms of import demand, increasing their total dairy imports by 42% in 2013, with most of this increase in the form of whole milk powder.”

“A significant constriction in Chinese milk production coupled with rising demand for dairy based protein throughout Asia ultimately caused the dramatic increase in Asian demand for imported dairy commodity dairy products. Since the melamine crisis China has struggled to achieve desired growth in its own milk supply, weather disease and regulatory changes in China have conspired to create a full blown supply challenge in 2013.”

Chinese production down 5-10%, not going to recover in 2014

“industry analysts have estimated Chinese milk production to be down anywhere from 5% to 15% compared to year ago levels with most of the trade estimates in the 5% to 10% range. Chinese milk production is not expected to fully recover in 2014 as these are issues that cannot be quickly reversed.”

US and EU need to pick up the slack

“in order for domestic raw milk prices to experience a noticeable decline in the second half of 2014 there will need to be a significant supply response from both the U.S. and the European Union.”

Elevated milk prices throughout 2014

“Overall we expect raw milk prices to remain elevated across all categories throughout 2014 especially in the first half.”