Dean Foods Company gets hit by Commodity Price increases. Food verses Fuel, the Dean stockholders suffer.

Implications: 1.  Consumer Product Goods companies are at risk for commodity price increases even if they are not directly involved in the basic commodity businesses. 2.  In this case, Milk is the Produced article which is "manufactured" by cows eating basic commodity ingredients. 3.  Companies like this need to devise hedging strategies to protect shareholders from the risk of basic commodity price increases 4.  Just as importantly, pricing at the retail level is hard to get.  The consolidation of food retailers will only continue.  These massive buying agencies are not going to allow pricing easily.

Analysis:  Shareholders buy fine companies because they love the brands they own and manage.  In the CPG space, nearly all of those brands have some element of risk associated with input costs of basic commodities.  The closer the brand is to the basic commodity, the more it is likely to be affected by commodity price risk.  Firms need to study their risk portfolios as it relates to basic commodity prices and develop strategies that will reduce that risk for their share holders.  My bet is that raw milk prices have a very good correlation to the price of Corn.  A solid hedge program in corn may be an answer for price risk control for raw milk.

Corn is now the basic feed stock for the Alternative Fuel Program in the U.S. and other parts of the world.  That will likely continue for at least 5 to 10 more years.  The average analyst missed their guess for earnings at Dean Foods.  This may be because they are not asking the correct questions to company's management that have exposure to basic grains.  My suggestion is for interested persons to ask management how they are protecting the value of the company through Commodity Price Risk strategies.

Finally, in the "old days", fine brands had a lot more pricing power on the shelf.  Today with the consolidation of the retail sector (Wal-Mart, Albertsons, Others) that have centralized purchasing, pricing becomes very difficult.  This especially if a competitor supplier of the brand has covered the risk of price exposure and uses this as a strategy to get more shelf space.  In short, these big retailers will not give pricing easily.

Summary, CPG food companies must understand their brand's underlying basic commodity price risk profile and have strategies in place to cover those risks.  Otherwise, the brands will be put at risk or margins will get squeezed.  Either option is a problem for Shareholders.