There are many things that we take for granted in this country. WiFi connectivity, water, streets and roads are some, as is milk. Yep, that whitish fluid that you put into your cereal, morning coffee, pancake mix and so on. What you may not realize is that milk prices, just like those for beef, pork, shrimp and others, have jumped significantly. Year over year, during the June quarter, raw milk costs increased 31% and rose 6% from the March quarter to an all-time high.
Dairy company Dean Foods (DF) shared that figure when it issued its most recent quarterly earnings results. That’s a huge increase, and I’m sure you can imagine the impact it has had on the profits and share price for Dean Foods. This milk price climb has been fueled by increased international demand for U.S. dairy products (milk, cheese, butter, creamers, cottage cheese and so on) amid lower production in major dairy lands outside the United States. On the one hand, you would think that rising international demand would be a good thing. Normally, that would be the case, but when there is a supply-demand imbalance, the end result tends to be higher prices.
The problem with higher prices is that past a certain point, it becomes difficult to pass along higher costs to consumers. According to the United States Department of Agriculture (USDA), across the country the average price for a gallon of milk on Aug. 7 was $3.06, up 14% from a year ago.
Yeah… there’s no inflation; be sure to tell that to the Fed!
At some point, you and I look for alternatives, and, yes, that’s been happening when it comes to milk. Soy milk, almond milk and coconut milk are three of the competing products that are taking up more and more shelf space in your dairy cooler case. I know you’ve seen them, and I know more and more people that are shifting over to them. One company that is benefitting from the shift toward these non-dairy milks is The WhiteWave Foods Company (WWAV), the company behind Silk®, Horizon®, International Delight®, Earthbound Farm® and Alpro® products, among others. During the last four quarters, WhiteWave handily beat Wall Street expectations.
Chris Versace is the editor of PowerTrend Brief — a FREE, weekly electronic newsletter. He also writes PowerTrend Profits, a paid monthly newsletter that helps individual investors profit through buying shares of companies poised to win big in the 8 PowerTrends, as well as writes the PowerTrader trading service that seeks to deliver short-term gains using stocks, ETFs and options. Chris has been ranked an All Star Analyst by Zacks Investment Research.