After a stellar first half to 2012 in which the stock gained over 50%, Dean Foods (ticker: DF) is finding the 2nd half of the year less palatable. The stock is down over 28% for the month, having given back a large portion of its over the previous 6 months.
The 28% monthly decline makes it the 2nd worst performer in the S&P 500 month to date. Here's the bottom 10:
It appears that the cause for DF's plummeting stock price is the same as the one driving Lean Hogs futures lower (
which we wrote about for Wednesday's post): higher grain prices.
Here's some commentary from an analyst at BMO Capital Markets after he lowered his rating on DF this past Monday:
In a client note, the analyst said that the unusually warm weather and
escalating feed costs are pushing raw milk prices higher at a
quicker-than-expected pace.
There is also concern that Supervalu
Inc.'s decision to be more aggressive to lower prices will see other
supermarket operators do the same. Sharma says this makes it more likely
that there will be more milk promotions.
The analyst reaffirmed a $16 price target.
Here's a chart of DF alongside Cattle Feeder front month futures contracts for the past 12 months. The correlation isn't tight but as cattle feed prices declined over the past month, we see how DF sharply reversed its upward trend.
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