Saputo CEO Expects Low Dairy Prices to Persist Amid Global Glut

February 4, 2016 11:59 PM

Saputo Inc., Canada’s largest dairy processor, said it expects international dairy and cheese prices to remain low amid a global supply glut and lower demand from China.

“Right now there’s too much milk in the system,” Chief Executive Officer Lino Saputo Jr. said Thursday on his company’s third-quarter earnings conference call. “I think it’s a matter of time before there’s a natural balance between the amount of natural solids that are produced and the growing demand in emerging markets.”

Milk prices have tumbled amid a global surplus and shrinking demand from countries such as China and Russia. Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, cut its milk price forecast to a nine-year low in January.

Saputo, based in St. Leonard, Quebec, expects international dairy and cheese prices to remain low throughout 2016 and into the first half of fiscal 2017, Saputo Jr. said on a conference call with analysts. While international pricing is going to be a challenge, the company has seen a boost in profitability in domestic markets in Argentina and Australia from foreign exchange gains and operating efficiencies, he said.

Benchmark Class III milk futures, a type used in cheese making, have declined 12 percent in the last 12 months to $13.93 a pound on the Chicago Mercantile Exchange. Cheese futures have declined 1.2 percent on CME in the past year.

Saputo said net income rose 13 percent to C$175.2 million ($127.5 million) in its fiscal third quarter, which ended Dec. 31. Excluding one-time items, earnings per share were 44 cents, higher than the 39-cent average of nine analysts’ estimates compiled by Bloomberg.

The stock rose 3.2 percent to C$35.21 at 4:08 p.m. in Toronto.

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