DairyBusiness Update for Jan. 4, 2013
Saputo Inc. completed the $1.45 billion ($ US) transaction to acquire Morningstar Foods, LLC, a subsidiary of Dean Foods Company, on Jan. 3, one month to the day after the agreement was announced. Morningstar has about $1.6 billion ($ Canadian) in annual revenues, approximately 2,000 employees and operates 10 manufacturing facilities located in nine states. The combined business will have approximately 12,000 employees, 57 manufacturing facilities in five countries and combined annual revenues of approximately $8.6 billion ($ Canadian). The acquisition of Morningstar complements the activities of the Saputo Dairy Products Division (USA).
As a result of this transaction, Dean expects to realize approximately $887 million ($ US) in proceeds, net of taxes and expenses. The company plans to use all net proceeds toward fully retiring its remaining senior secured term debt, significantly lowering its leverage.
Farm Bureau Marketbasket: Milk prices
U.S. food shoppers paid a bit less at the grocery store during the fourth quarter of 2012, according to the latest American Farm Bureau Federation Quarterly Marketbasket Survey. A total of 107 shoppers in 31 states participated in the latest survey, conducted in October. The total cost of 16 food items was down about 3% compared to the third quarter of 2012
Based on survey results, average milk prices were as follows: 1 gallon of regular milk, $3.73; 1/2 gallon regular milk, $2.38; 1/2 gallon organic milk, $4.00; and 1/2 gallon rBST-free milk, $3.15.
Dairy Margin Summary: December
Quarterly forecasted dairy margins continued their mixed trend, strengthening in some periods while weakening in others, but were largely steady to finish off the month of December, according to Commodity & Ingredient Hedging’s CIH Margin Watch report.
Feed prices have generally been declining over the past couple weeks, as improved weather in South America has taken more risk premium out of the market. Corn demand remains poor, with dismal weekly export sales and negative ethanol margins evident. The market will focus on the level of domestic feed demand to be revealed in the quarterly stocks report Jan. 11.
Soybean meal demand has been stronger, although there is now a fairly limited window of time before South American supplies will become available to the world market.
Milk prices will avoid the “dairy cliff” with a one-year extension of the 2008 Farm Bill, although the milk market has other issues concerning product demand. The monthly Cold Storage report showed November cheese stocks down 1.5% from October, when normally there would be a 4% decline on average. Butter stocks at the end of November were down 12.5%, in a month where typically we see a 32.5% decline. Neither figure bodes well for demand, suggesting we may need to see more of a decline in monthly milk production to reduce stocks. Visit www.cihmarginwatch.com.
MARKETS: Barrels down, butter up; 2013 Class III futures mostly lower
Today's market closing prices:
Butter: up 0.5¢, to $1.50/lb.
Cheddar blocks: unchanged, at $1.76/lb.
Cheddar barrels: down 1.0¢, to $1.72/lb.
Grade A nonfat dry milk: unchanged, at $1.5575/lb.
Extra Grade nonfat dry milk: unchanged, at $1.56/lb.
Class III milk: steady to to -18¢ through November 2013. Based on current CME closing prices, the 2012 average is $17.44/cwt.; the 2013 average is $18.42/cwt.; and the 2014 average is $16.33/cwt.
Corn, soybean and meal futures lower
Corn: -9¢ to -15¢ through July 2014. The 2013 average is $6.40/bu.
Soybeans: -14¢ to -21¢ through November 2014. The 2013 average is $13.41/bu.
Soybean meal: -$3.20 to -$7.40/ton through September 2014. The 2013 average is $381.86/ton.
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