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FTSE 100 jumps 1.5% as miners recover but Dairy Crest down on milk price warning

Discussion in 'Market News' started by Lily, Sep 19, 2016.

  1. Lily

    Lily Forum Member

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    Dollar weakness lifts commodities and pushes leading index sharply higher

    Milk producers are lapping it up at the moment as prices soar, particularly for cream.

    Dairy Crest, the spreads company behind Clover, Country Life and Cathedral City, said it had recently had to raise the prices it paid to farmers by 12%. Chief executive Mark Allen said:

    Recently we have seen inflation across all dairy markets. To date we have announced increases amounting to 12% in the milk price we pay to farmers. Cream prices have been particularly affected, doubling over a very short period. This sudden cost inflation is likely to have an impact on butter volumes and margins in the second half.

    Dairy prices are recovering sharply due to the improving global market, weaker sterling and lower UK milk production. This is resulting in a sharp price appreciation in raw milk and associated products. For instance spot milk has risen in recent weeks from 15p to 37p per litre with cream prices doubling from 80p to 160p.

    The industry is responding to this by increasing prices to farmers. For instance Dairy Crest increased its raw milk price by 1ppl to 22.7p in September and announced on Friday a further 1.5p increase spread over October and November. Other producers are seeing a similar trajectory, with some having to increase at a faster rate in order to hold onto their milk producers. We expect the price increases to be recovered in the market, with own label cheese suppliers, in particular, needing to recover higher prices in the short term. From Dairy Crest’s point of view this should be helpful for margins given the timing of milk purchases and maturation period for cheese.

    After a torrid last week, investors will be pleased to see markets rebound this morning, with European equities on the rise ahead of the Bank of Japan and Federal Reserve decisions on Wednesday. With the expectation of no action in the US until at least December, the major market moving news is likely to be from Governor Haruhiko Kuroda - with investors hoping for significant intervention and forward guidance, including a further cut to rates.

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