CCM: Stable Milk Prices in 2016

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Publish time: 3rd May, 2016      Source: CCM
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  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