Dean Foods enters bankruptcy amid volatile dairy markets

Dean Foods enters bankruptcy, begins sale of company assets as industry struggles with slim margins and volatile markets for dairy and feed.

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Dean Foods enters bankruptcy, begins sale of company assets as industry struggles with volatile dairy markets

Dean Food has filed for bankruptcy and initiated the sale of ‚Äúsubstantially all assets,‚ÄĚ the company announced this week, as the industry at large struggles with volatile dairy markets and animal feed prices.

According to a company press release, Dean Foods plans to use the bankruptcy proceedings to ‚Äúprotect and support its ongoing business operations and address debt and unfunded pension obligations‚ÄĚ as it works toward the sale of the company. Dean Foods and Dairy Farmers of America both indicated the two companies were in ‚Äúadvanced discussions‚ÄĚ regarding the potential acquisition, which would be subject to regulatory oversight.

‚ÄúAs Dean Foods is DFA‚Äôs largest customer, our focus is ensuring we have secure markets for our members‚Äô milk,‚ÄĚ Monica Massey, executive vice president and chief of staff at Dairy Farmers of America, said in a statement. Massey said ‚Äústrategic planning and management‚ÄĚ by the DFA board of directors put the cooperative ‚Äúin a financial position to withstand a situation like this.‚ÄĚ

The move comes as the dairy industry at large faces increasingly thin profit margins, squeezed by rising feed prices and shortages in multiple regions and falling milk prices, triggered by surplus dairy production and shifting consumer trends. In a formal declaration filed on November 12 in U.S. Bankruptcy Court, Dean Foods CFO Gary Rahlfs cited ‚Äúsignificant industry headwinds and an impending liquidity crisis‚ÄĚ as the reasons for the company‚Äôs bankruptcy filing.

Industry challenges

In the U.S, per capita consumption of milk decreased 22% between 2000 and 2016, offset primarily by increased interest in plant-based alternatives. According to the U.S. Department of Agriculture’s Margin Protection Plan for Dairy calculation, farm-level margins contracted 27% from 2017 to 2018. Dairy production, and feed production for dairies, has nonetheless continued to increase.

The industry also faces increased pressure from vertically integrated competitors such as grocery retailers and dairy cooperatives, according to Rahlfs‚Äô statement. Rahlfs testified that retail prices for private-label milk hit historic lows in September 2019, and that major retailers ‚ÄĒ including some of the dairy processors‚Äô former customers ‚ÄĒ had begun to open their own dairy processing plants.

Rahlfs said multiple cost-saving and strategic initiatives initiated in 2018 and 2019 were unable to counter the company’s shrinking margins, and caused increased customer loss. In October 2019, he said, the company experienced a sharp decline in profits that caused the company’s financial outlook to deteriorate far more rapidly than previously anticipated.

Dean Foods owns nearly 60 brands, including DairyPure, Meadow Gold and TruMu. The Texas-based company has 15,000 employees distributed across all 50 U.S. states.

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