Dairy prices to soften, says Glanbia

23-Aug-2011 - Last updated on 26-Aug-2011 at 10:37 GMT

A modest weakening in dairy prices is expected, forecast Glanbia, as the company posted a profit jump in its half year results.

The Irish dairy and nutritional firm said the upward trend in world dairy prices appeared to have peaked.

“However, present indications are that there should be no very significant price adjustments in the near-term. As a result, global dairy markets are forecast to be relatively positive for the remainder of the year,” said Glanbia.

Demand is also expected to remain strong, with prospects for extra milk supply.

The firm’s earnings increased by 33 per cent from €1.03bn to €1.38bn, with operating profit growing 44.2 per cent from €11m to €16m.

Growth was driven by increasing demand for dairy in developing regions such as China, the Middle East, North Africa and Russia led to continued demand and elevated prices, said group managing director John Moloney.

Following its positive results, the food group has more than doubled its target earnings growth.

Challenges in Ireland

In Ireland, dairy ingredients benefitted from strong global dairy prices, good domestic supply of milk and strong sales volumes, said the firm.

Revenue in the Dairy Ireland business jumped by 30 per cent to €705.6m, while profits before restructuring costs leapt up 72 per cent to €32.9m.

However, Glanbia said the environment remained challenging for its Irish consumer foods business, expects it to persist over the second half of the year.

The market size is estimated to be currently only just above 2007 levels, with minor year-on-year real growth.

“Approximately one sixth of total purchases made by consumers are on promotion and a focus on price remains the key market dynamic. Consumer confidence is fragile and declined again in recent months as a result of the difficult domestic economic situation,” said Glanbia.

Strong growth

In the US, dairy markets were significantly higher relative to the first half of 2010, said Moloney.

Positive market conditions drove a good performance in the company’s businesses Dairy Ingredients Ireland, US Cheese and International Joint Ventures.

The firm’s Global Nutritionals businesses also had a successful six months, with further growth in demand across all key nutritional markets and product categories, he said.

Profits in Glanbia's US cheese and global nutritionals businesses saw a revenue increase of 29 per cent to €636m. Operating profit rose by 24 per cent to €59.3m.