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Dairy enters bear market - but too late for Danone

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Danone revealed a dent to revenues from elevated milk prices, even as a "correction" in dairy values at benchmark GlobalDairyTrade auction topped 20% - meeting the specification for a bear market.

French-based Danone, the world's largest yoghurt maker, reported a 5.2% decline to E5.06bn in sales in the January-to-March period.

While the performance was dragged lower by one-time effects, with like-for-like sales growing by 2.2%, even this figure was below the 4.5-5.5% that the group has forecast for the full year.

The performance reflected - besides the hangover on Asian infant nutrition sales from a food scare surrounding milk powder Danone bought from Fonterra, the New Zealand dairy giant – a slowdown in dairy sales as the group passed on higher wholesale milk prices.

Sales volumes fell by 3.7%, a decline stemming "from price increases introduced since the second half of 2013, notably in Russia", the group said, pegging at 7.6% the average rise in the price of its products during the latest quarter.

Dairy prices down 20%

Danone stuck by its forecast for growth in full-year like-for-like sales of 4.5-5.5% despite assuming continued "significant carryover of milk price inflation".

However, the forecast came hours after prices at GlobalDairyTrade fell for fifth successive auction – the longest losing streak since 2011 – this time dropping by 2.6%.

The decline reversed GlobalDairyTrade's benchmark index to a 13-month low.

And it took the fall in dairy prices from an early-February high above 20%, meeting the definition of a bear market.

Values of anhydrous milk fat have farted particularly badly, tumbling by 27% over the period, with prices of whole milk powder declining in line with the average, and those of skim milk powder falling slightly less rapidly, at 18.4%.

'Really impressive'

The drop in prices was attributed to a strong start to the year in Europe, where a mild winter - at a time when high prices and an easing in quotas are encouraging farmers to raise productivity – has boosted milk output.

EU production rose by 4.7% year on year in January, the latest monthly figure available for the whole bloc, and Rabobank has forecast output growth averaging 4% in the first half of calendar 2014.

That contrasts with a 1.9% drop in output in the first half of 2013.

UK output soared 14.2% in the two weeks to April 5.

"Europe's growth in output has been really impressive, and they have been very competitive in getting business," Dave Kurzawski, senior broker at INTL FC Stone's Chicago dairy operations, told

Meanwhile, buyers had "had a bellyful" of higher prices, which on two-year timescale remain up 38%.

Slowing pace of decline

However, Mr Kurzawski, terming the slide in prices a "correction", raised doubts over whether it would continue, highlighting that "stocks of many products are still pretty tight", limiting buyers' ability to stand-off the market for long.

He also noted a slowdown in the pace of decline, from 8.9% at the previous event, on April 1.

"Declines have continued in the international market, but we have not seen freefall," he said.

"There is a perception that the precipitative declines in prices have stopped."

In Paris, Danone shares closed up E0.01 at E53.28.


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