Winnipeg - Saputo, 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,” CEO 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, the world’s largest dairy exporter, cut its milk price forecast to a nine-year low in January.
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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 December 31. Excluding one-time items, earnings per share were 44 cents, higher than the 39-cent average of nine analysts’ estimates compiled by Bloomberg.
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The stock rose 3.2 percent to C$35.21 at the close in Toronto.
BLOOMBERG