CCM: Purchase Price of Raw Milk to Stay Stable and Decline Slightly in H1 2016

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Publish time: 21st June, 2016      Source: CCM
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    On 20 March, the Hebei Raw Milk Price Coordination Committee held a meeting in Tangshan City, at which the Q2 reference purchase price for raw milk was set as follows:
  

      
  •     Large commercial dairy farms: RMB3.85/kg   
      
  •     Co-operative dairy farms: RMB3.43/kg   

  
"Dairy companies and farmers are expected to support each other to achieve joint development,' said Zhang Qiang, Director of the Hebei Provincial Animal Husbandry and Veterinary Bureau, "It is necessary to regulate the raw milk purchase and sales contract and the implementation of the 'reference price' mechanism, to improve the scale of farming and modernised management, to maintain a relatively stable purchase price and to keep purchases in order. The joint efforts of dairy companies and farms will help ensure the milk quality and reduce farm costs.'

  
The price declines are as follows:

      
  •     Large dairy farms: down by 3.5% QoQ   
      
  •     Cooperative dairy farms: down by 4.4% QoQ   

  
In comparison:

      
  •     Shanghai - here the purchase price is RMB3.80/kg in H1, reflecting its minor milk production   
      
  •     Inner Mongolia Autonomous Region - here the latest purchase price has yet to be released. The lowest figure locally in 2015 was RMB1.40/kg, with recovery to RMB3.80/kg in the peak period towards the end of the year, although this was still lower than that in the same period of 2014   

  

   
In general, Q1 sees the peak season for the sales of dairy products, meaning strong demand for raw milk and relatively high milk prices. Whilst in summer production lowers due to the high temperatures, and processors may resort to milk powder and reduce their milk purchases, depressing the purchase price.

  
H1 is widely expected to see the milk price throughout the country stay stable and decline slightly. Li Shengli, Chief Scientist of the National Dairy Industry and Technology System, agreed to this: "In particular, the international price trend will impact the domestic one." He even predicted that the domestic purchase price of raw milk will be less than RMB4/kg throughout 2016.

  
This situation won't change for the better in the short-term - this year will see more milk from Europe in particular, but the real problem is the stock levels in play. It should have been no surprise when on 8 March, Fonterra again reduced its payout in the 2015/16 milking season (June-May) from NZD4.15/kg to NZD3.90/kg milk solids. 

  
In addition, there are 2 factors in the domestic market also impacting the purchase price:

      
  •     Decreased feed costs: prices of corn and soybean meal are currently down by 15-20%   
      
  •     Increased imports of milk powder   

  
Notably, the purchase price of raw milk was up by 3.5% YoY in March, however down by 0.3% MoM. The YoY rise is partially because the purchase price was low in 2015.

  
                                                              Purchase Price of Raw Milk, November 2014-March 2016

                                           

                                           Note: March 2016: as of 9 March

                                           Source: Ministry of Agriculture

  

  This article comes from Dairy Products China News 1603, CCM

  

    

  

  

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  Tag: raw milk  dairy