Impacted
by weak demand and imports of milk powder, China’s farm milk price is expected
to remain stable in 2016, probably rising slightly in H2, supported by
increasing international prices.
According to the
National Bureau of Statistics, China produced 37.5 million tonnes of (cow) milk
in 2015, up by 0.8% YoY. “This growth is within expectations”, said Yuan
Yunsheng, Secretary General of the Hebei Dairy Association: "It reflects
the transformation and upgrading of the domestic dairy industry. Although last
year many dairy farmers were forced to cull cows and dump milk, meanwhile dairy
companies have been investing in establishing integrated supply chains by
building large-scale dairy farms. This is beneficial to the stable development
of the domestic dairy industry".
However, the
problems he alludes to were a response to weak prices for raw milk,
attributable to several issues.
Reduced demand: in 2015, China imported 1.9 million
tonnes of dairy products, down by around 9%, according to Han Yi, Director of
the Bureau of Import and Export Food Safety, General Administration of Quality
Supervision, Inspection and Quarantine. This showed the weak domestic demand.
High inventory: production of milk powder
fell by between 60-70%, as companies ran down their stocks. There are no
reliable figures, but trade sources estimate that by the end of 2014, the
inventory at the industry's major players was in the region of 400,000-500,000
tonnes. Now the figure is estimated at about 200,000-300,000 tonnes. In
addition, inventories of finished products, especially UHT milk, were also
large
Imported milk
powder: whilst diminished, imports of WMP remained significant, at nearly
400,000 tonnes, aided by the lower prices
Demand for dairy
in 2016 looks set to stay relatively weak, given the country's slower economic
growth, whilst the competition from imported milk powder is likely to be even
fiercer, so China's farm milk price is likely to remain stable this year at
best. It is likely to be aided only slightly by the expected recovery of
international milk prices, with the anticipation that reduced New Zealand
output will provide a counterbalance to the so far continuing growth in EU
production.
In one example of
the weak market, dairy farmers in Guangdong are signing 2016 sales contracts at
USD815.0-845.7/t (RMB5,300-5,400/t), an average down by 2.5% YoY: almost a
third of the province’s farmers have signed at this price. Large-scale farms –
which make up around 90% of cows farmed in Guangdong – generally sell at a
higher price. The small producers will sell at USD30.8-46.1/t (RMB200-300/t)
less, often around USD768.9/t (RMB5,000/t). At the end of December 2015, the
Guangdong Dairy Association held a coordination meeting on this topic.
It was reported in
the meeting that in 2015, the operating expenses such as labour in local dairy
farms had increased by 6.8%, offsetting the declining price of materials such
as feeds. In addition, farm management was strengthened, which helped raise the
milk yield by 1.7% per cow. Overall, the total costs for milk production fell
by 2.4% whilst the purchase price was down by 2.5%. Consequently, the
association suggested that the purchase price in 2016 should remain the same as
in 2015.
“Guangdong has China’s highest milk prices”,
noted Wang Dingmian: “This is mainly because its labour cost is fairly high,
and meanwhile it has no forage grass production – meaning that feeds such as
bean pulp are imported from the US and forage grass is transported from the
northern areas of the country”.
Average Purchase
Price of Raw Milk, January 2014-January 2016
Source: Ministry
of Agriculture
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Tag: milk powder, milk, dairy