Good faucet? Liu Chao, China Dairy Industry Association: It is expected that milk prices will be difficult to adjust in the fourth quarter

On October 22, the dairy sector rose in the afternoon, and the new dairy industry rose by more than 8% at one point, followed by Yili shares, Bright Dairy, Miaoke Lando, and Yantang Dairy.

Despite watching dairy stocks perform well today, dairy companies are under pressure.

Today, Liu Chao, vice chairman of the China Dairy Industry Association, said at the China Dairy Capital Forum that China has entered the ranks of the world's high milk prices, the average price of fresh milk in China was 3.95 yuan per kilogram in October last year, and the milk price rose to 4.37 yuan per kilogram in October this year, while the international milk price was at 2 yuan per kilogram in the same period. With the arrival of the peak season for dairy sales in the fourth quarter, it is difficult to predict that milk prices will be adjusted.

Behind the rise in milk prices, on the one hand, the price of dairy cattle breeding feed has risen, resulting in the continuous increase in the cost of raw milk production.

On the other hand, in the past five years, affected by factors such as national environmental protection and rectification, some dairy farms have been shut down one after another, and the number of dairy cattle has continued to decline and remain low. However, due to the impact of the epidemic, consumer demand for dairy products has increased, and even in the case of high milk prices, dairy and food manufacturing industries still have a large demand for raw milk.

It is reported that at present, the three largest domestic milk suppliers, Modern Animal Husbandry, Huishan Dairy and Shengmu Hi-Tech, have a total daily output of less than 10,000 tons of raw milk, while Mengniu alone needs 24,000 tons of raw milk per day.

The supply of raw milk market is insufficient, and the phenomenon of enterprises "grabbing milk at high prices" is not uncommon.

So much so at the end of March this year, the China Dairy Industry Association issued the "Notice on Resolutely Stopping High-priced Milk Grabbing", requiring member units to implement the guidance price for the purchase of raw milk formulated by various localities, not to grab milk, not to reduce quality, not to suppress prices, and not to raise prices, so as to curb the current situation of downstream dairy enterprises competing for high-quality milk sources.

The direct impact of the rise in milk prices is that the cost pressure of dairy companies will increase their holdings, which will compress profit margins to a certain extent.

However, such a situation is a good opportunity for dairy leaders.

Why? Because the high price of milk does increase the cost of dairy enterprises to a certain extent, but the leading enterprises themselves have certain milk source advantages, coupled with the improvement of channels, so the impact of high milk prices on dairy leaders will be relatively limited.

On the other hand, high milk prices will further promote the layout of the dragon to occupy the upstream milk source, but it is difficult for small enterprises to have the strength to compete with the leader.

In fact, when the price of raw milk was high last year, Yili, the leader of the dairy industry, has begun to vigorously lay out upstream milk sources.

Since 2020, Yili has made an offer to acquire Zhongdi Dairy through a subsidiary, and Fonterra's pasture group in Yingxian and Yutian through Youran Animal Husbandry, and plans to invest 3.9 billion yuan to build a new Jinhao Yili application demonstration project in the core milk source area.

In addition, the dairy industry leader has a strong voice in price, through direct and indirect price increases, coupled with product structure upgrading and consumption recovery, it is expected to achieve revenue growth that far exceeds that of the same industry.

Bohai Securities said that Yili, as a leading enterprise in China's dairy industry, has a strong scale and brand advantages. Under the upward trend of upstream raw milk, industry competition is expected to slow down, and enterprises may resist cost shocks by continuously improving product structure and controlling cost delivery. Due to the impact of the epidemic, the national health awareness is constantly increasing, and the demand for dairy product consumption is expected to continue to grow moderately, and the company will surely share the industry dividend.