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China’s raw milk producers are facing a new cost crisis as feed prices start to rise again, after the recent milk surplus began to abate thanks to cow herds shrinking and dairies stockpiling before the Mid-Autumn Festival at the end of next month.

The price of soybean meal, which is used as animal feed, jumped to CNY5,000 (USD690) a ton from CNY4,000 at the beginning of the year, dairy farmers told Yicai. Feed costs account for about 65 percent to 70 percent of a farmer’s expenditure, they added.

Global food and animal feed prices surged last year following the start of the Russia-Ukraine conflict. Soybean meal topped CNY5,500 a ton around the end of 2022, as the milk industry entered a crisis period.

Natural disasters and extreme weather in many parts of the world this year will also affect the prices of soybean meal, corn, and alfalfa grass, which will pile pressure on the milk industry, according to dairy analyst Song Liang.

“Dairy companies’ milk collection has been normal recently, but raw milk prices are still relatively low,” Xu Gang, head of a large ranch in Hebei province, told Yicai. Though it costs CNY3.60 (49 US cents) per kilogram, lower than the ranch’s cost price, the improvement has come as a relief to Xu. 

The average price of raw milk in 10 major producing regions, including Hebei and Inner Mongolia Autonomous Region, was CNY3.76 per kg on Aug. 14, up 0.3 percent from the previous week but down 8.7 percent from a year earlier, according to agriculture ministry data. It was the first time this year that prices rose.

In the first half, 60 percent of milk producers lost money because of weak consumption and high feed costs, with some small and mid-sized farmers forced to let go of cows to reduce costs. Some major producers, including Youran Dairy and China Modern Dairy, issued profit warnings.

Even if the sector picks up because of the rapid fall in the number of dairy cows and the recovery of the demand, it remains to be seen whether the industry has bottomed out, Song noted. Moreover, the fact that dairies previously stored large amounts of milk in the form of powder may lead to oversupply and stall the recovery.

Source : YIcaiglobal Aug 22nd 2023

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