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

Dollar weakness lifts commodities and pushes leading index sharply higher
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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.
But as “a strongly branded and added value business”, he said Dairy Crest was well placed to deal with inflationary pressures and so its outlook for the full year remained unchanged.
The comments came as Dairy Crest – now a pure food producer having sold its loss-making dairies division – said first half sales volumes of its four key brands would be ahead of last year.
But pitching Cathedral City as a premium product and relaunching its branding and packaging , it discounted prices by less than competitors, leading to a small volume decline in the first half. However it said margins had improved and customers had responded positively to the new packaging and marketing campaign.
On the price rises, Peel Hunt analyst Charles Hall said:
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.
In the spreads division, the main impact is on butter where Dairy Crest sells around 14,000t. Again the price increases will need to be passed on to customers by the industry, though Dairy Crest is relatively protected by its supply agreement. The company has highlighted that the price increases are likely to impact butter volumes and margins in the short term, which is not a surprise. This should be offset by higher cheese margins.
Dairy Crest shares have dropped 2% to 654.5p following the news.
Overall the market is moving higher as oil prices recover and investors await key interest rate meetings this week from both the Bank of Japan and the US Federal Reserve. Rebecca O’Keeffe, head of investment at Interactive Investor, said:
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.
The dollar has weakened as investors bet the Fed will keep rates on hold, helping push commodity prices higher and lifting mining shares.
Overall the FTSE 100 is 101.25 points better at 6811.53, with seven of the top ten risers being commodity companies.
Anglo American is up 37.8p at 852.2p, Glencore has climbed 6.95p to 191.95p and Royal Dutch Shell A shares rising 45.5p to £18.44.
Satellite broadcaster Sky has climbed 21.5p to 861.5p as Morgan Stanley moved from overweight to equal weight but cut its target price from £10.25 to £10. The bank said the company’s shares were oversold:
Structural fears have driven Sky shares down 25% year to date so that it now trades at a around 9% 2018 estimated free cash flow yield and near its decade-low PE relative. Management’s new targets and incentives though imply around 10% per annum earnings per share growth and 100p of earnings per share by 2021.
Among the couple of FTS 100 fallers is outsource Capita, down 1.5p at 970p after a profit warning from smaller riser Mitie, down 25% at 200.9p.
miners recover, dollar down on no Fed move
 
Source: TheGuardian
Link: https://www.theguardian.com/business/marketforceslive/2016/sep/19/ftse-100-jumps-15-as-miners-recover-but-dairy-crest-down-on-milk-price-warning
 

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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