Food companies pressured by high dairy prices

NEW YORK — Higher dairy prices, driven up by factors including strong global demand for corn, are putting pressure on already hamstrung food companies.

Companies that churn out chocolates, yogurt, ice cream and cheese have begun to feel the heat, prompting them to warn Wall Street of lower earnings and ponder price increases.

Chocolate-maker Hershey Co., Hershey, Pa., last week tempered its guidance for the year due to higher costs for milk. Dallas-based Dean Foods Co., which makes ice cream, Horizon organic milk and yogurt, recently warned it would only meet the lower end of an earlier forecast.

Dean Foods’ stock is off 25 percent so far this year, while Hershey is still up 5 percent.

“We are increasingly concerned about rapidly rising raw milk prices and industry estimates for continued increases through the balance of the year,” Dean Foods Chief Executive Gregg Engles told analysts and investors in a conference call in early May.

A confluence of factors are propelling dairy prices higher. Prices for corn, which is used in the production of ethanol, have been rising due to a surge in demand for the biofuel. The higher prices for corn, coupled with higher costs for soybeans and hay, have been making livestock feed more expensive.

There are also other forces in play. According to Chris Galen, spokesman for the National Milk Producers Federation, a number of food companies have been looking to buy milk produced without the use of the artificial bovine growth hormones called RVST. While use of those hormones can help increase productivity, a drop in their usage crimps supply, he said.

At the same time, demand for dairy products has been strong internationally due to a weaker dollar, strong demand from fast-growing Asian economies and a slowdown in the dairy industries of Australia and New Zealand, said Galen.