A few days ago, Youran Dairy (09858) and Modern Dairy (01117), the leading domestic ranch companies, successively disclosed their 2023 performance announcements. As the "top students" in the industry, the performance of Youran Dairy and Modern Dairy in 2023 is not satisfactory. Relevant announcements show that last year, the income of Youran Animal Husbandry increased by 3.6% to 18.694 billion yuan, and the net profit attributable to the parent company increased by -1.05 billion yuan while the scale increased;
Does the fact that the industry leaders are under pressure to make a profit at the same time point to the deterioration of the fundamentals of the entire dairy farming industry? Looking ahead, when can the leading companies look forward to a new round of profit upward cycle?
The pressure on the profitability of leading enterprises is difficult to eliminate
From the perspective of the industry, Youran Dairy and Modern Dairy are both leaders in the upstream dairy industry, and these two companies maintain a large leading position in indicators such as dairy cow inventory and raw milk output.
Although they have been at the top of the industry, when combined with the financial reports of the two companies, it is clear that scale is not an absolute guarantee of profitability. In 2023, the dairy farming industry will face multiple challenges such as declining milk prices and high feed costs, and even the difficulty of making profits for leading companies is still rising sharply.
Let's start with Youran Dairy, the company's revenue is mainly contributed by two major businesses: raw milk and ruminant breeding system solutions. In 2023, the company's raw milk business revenue increased by 18.9% year-on-year to 12.903 billion yuan, in terms of volume and price performance, the sales volume of raw milk increased by 26.5% year-on-year to 2.945 million tons, and the average unit price of raw milk decreased by 6.0% year-on-year to 4.38 yuan/kg. During the same period, the company's ruminant breeding system solutions business revenue fell by 19.5% to 5.79 billion yuan.
In terms of profitability, the gross profit of Youran Dairy's raw milk business last year was 3.696 billion yuan, corresponding to a gross profit margin of 28.6%, a year-on-year decrease of 2.8 pct, mainly due to the downward impact of raw milk prices. However, the gross profit margin of the company's ruminant breeding system solution has risen, driving the company's overall gross profit margin to 23.9%, an increase of 0.5 pct year-on-year.
Affected by the decline in the gross profit margin of the raw milk business and the loss of the fair value of biological assets of 3.61 billion yuan, Youran Dairy's net profit attributable to the parent company suffered a significant loss. After excluding the loss caused by the fair value of biological assets minus the cost of sales, the net profit for the current period in 2023 will be 2.16 billion yuan, an increase of 6.8% year-on-year.
Looking at modern animal husbandry, the company's revenue is mainly composed of three major businesses: raw milk, offline feed, and digital intelligence platform. In 2023, the company's raw milk business revenue will be 10.264 billion, an increase of 3.2% year-on-year. In terms of volume and price performance, the sales volume of raw milk increased by 9.4% year-on-year to 2.55 million tons during the period, and the milk price decreased by 5.6% year-on-year to 4.03 yuan/kg. During the same period, the new business segment recorded revenue of 3.20 billion yuan, a year-on-year increase of more than 30%. It is reported that the company's new business includes the original feed business, as well as the new digital intelligence platform business. During the year, grain source technology, love cattle raising, modern grass industry, modern feed industry, and Mengyuan seed industry were all developing rapidly.
Despite the steady increase in income, the profitability pressure of modern animal husbandry has been considerable in the past year. In terms of raw milk business, the gross profit of this business was 2.913 billion yuan, corresponding to a gross profit margin of 28.4%, a decrease of 2.7 pct from the same period last year. It is understood that this is mainly due to the fact that the gross profit contributed by the increase in raw milk sales during the year could not offset the impact of the decline in average selling price. During the same period, the gross profit of new business was $215 million, and the segment gross margin was 6.7%, which also shrank by 0.6 pct. Affected by this, the company's consolidated gross profit margin for the whole year was 23.2%, a year-on-year decrease of 3.4 pct.
Affected by factors such as the decline in the market price of beef, the decline in the price of raw milk, and the growth of herd size during the year, Modern Dairy also carried out a fair value impairment of biological assets of up to 1.28 billion yuan in 2023. Under the influence of multiple factors, the company's net profit attributable to the parent company for the whole year was 175 million yuan, and the net profit margin attributable to the parent company was only 1.3%.
The industry's prosperity is not good, waiting for profitability to be restored
After surviving 2023, can the new year be better for the upper pastures?
Zhitong Financial APP noticed that the prices of bulk raw materials and forage such as soybean meal, corn and imported alfalfa grass have shown a downward trend this year. Taking soybean meal as an example, according to Flush iFinD data, the spot price of soybean meal has continued to fall from the stage high of more than 5,000 yuan/ton in August last year to around 3,400 yuan/ton at present, a decline of more than three percent in several months. Coincidentally, the current spot price of corn has also dropped to around 2,300 yuan/ton, which is the lowest point in the past three years. The prices of major raw materials have fallen in tandem, which obviously helps ranching companies to ease cost pressures.
Despite the sharp drop in cost-side pressures, at the same time, the weakness in dairy consumption does not seem to be improving. According to public data, the price of fresh milk (raw milk) has peaked since the third quarter of 2021, and then it has been declining, and the average price of fresh milk (raw milk) in the main producing areas is around 3.47 yuan/kg, which is a two-percent decline from the 21-year high.
Weak downstream demand, superimposed relative surplus of milk sources, and the prominent contradiction between supply and demand, the downward trend of milk prices may be difficult to reverse in a short period of time. Needless to say, the ranching industry has always had a vicious cycle of "milk shortage, increased breeding, milk surplus, and dumping milk to kill cows", and each remeasurement of biological assets will have a significant impact on assets. Especially in a downcycle, the associated negative impact will be infinitely magnified.
Although the situation of the domestic dairy industry is still grim, the leading companies in the industry still seem to have strong confidence in the future. Previously, at the 2023 performance briefing of Modern Dairy, Sun Yugang, president of the company, said that the growth rate of domestic raw milk supply will slow down in the future, and consumers' demand for natural and less processed foods will rise, which will prompt the industry to promote the use of fresh dairy products; All of this bodes well for a more robust and sustainable dairy industry. Moreover, in the long run, it is the norm for milk prices to stabilize, and every downward cycle is an opportunity for large-scale enterprises to grow. With the gradual withdrawal of socially inefficient pastures, large-scale animal husbandry can win great development by taking advantage of scale, seizing opportunities, and increasing market share.
So far, the price of raw milk has not shown any signs of stopping, and it is expected that the upstream farms that watch the cycle will continue to face the profitability problem for a long time. In the industry reshuffle period, for the ranch companies that are still at the table, profitability may no longer be the highest priority, and survival is the real urgent need. In the meantime, Youran Dairy and Modern Dairy are still actively expanding their scale in their own ways, but they don't know when the new growth situation will appear......