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Revival in US milk prices to continue, says Dean Foods

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US milk prices will make a firm finish to the year, Dean Foods said, in the latest of a series of positive signs for dairy markets in the US, which has seen resurgent cheese and dry milk powder output, and indeed the world.

Dean Foods, the top US milk dairy processor, forecast prices of Class 1 Mover milk, the type drunk fresh, averaging $16.51 per hundredweight in December, rebounding 11.7% month on month, albeit remaining marginally below year-ago levels.

The rise would extend the rally in prices from the multi-year low of $13.14 a hundredweight reached in June, as the US market tackled volumes from the seasonal high in production, against a backdrop of a world market still in the early stages of recovery.

And the forecast comes amid some buoyant signals from other parts of the US dairy market, with spot futures in cheddar barrels, for instance, rising 25.25 cents to $1.86 a pound to make what the Milk Producers Council termed "the largest Friday-to-Friday rally in more than a decade".

'Supplies are tightening'

In fact, overall US cheese production in September hit 981.2m pounds, a record for the month, while non-fat milk powder hit 125.6m pounds, the biggest September figure for 54 years.

And, according to the Milk Producers Council, "The fundamentals in the butter market have taken a somewhat bullish turn" too.

"Although cream is still plentiful in the west and central regions" of the US, "supplies are tightening in the east.

"Foreign buyers are lapping up some US cream, and manufacturers are ramping up output of dips and spreads for the fast-approaching holidays."

Ahead of forecasts

Dean Foods' forecast came as the group unveiled a 28% drop to $14.53m in earnings for the July-to-September quarter on revenues down 3.4% at $1.96bn, reflecting weaker year-on-year prices.

However, on an underlying basis, earnings came in at $0.37 per share, narrowly ahead of the $0.36 per share expected by analysts.

And it forecast adjusted earnings per share of between $ per share in the October=to-December period, compared to analysts' expectations of a $0.37-per-share result.

'Robust ice cream innovation'

Dean Foods is planning to shift its business towards branded milk and ice cream products that command higher profits, as consumption of milk falls.

The company said there was a "continued growth" in flavoured milk and a 14% increase in ice cream, driven primarily by Friendly's acquisition.

A "robust ice cream innovation pipeline for 2017" has been put in place, the company said.

Dean Foods shares stood 1.6% higher at $18.75 in lunchtime deals in New York.

By Tanya Ashreena

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