The dairy industry has encountered the coldest "winter" in 15 years, forced to cut losses by killing cows! More than 60% of losses in aquaculture consumption | dairy industry | losses

After experiencing a U-shaped reversal, China's raw milk industry faced a cyclical downturn in just a few years.

Due to the weak consumption of domestic dairy products, coupled with the accelerated expansion of the domestic raw milk industry in the past two years, and the continuously high feeding costs, the supply-demand balance of raw milk was disrupted from the end of 2022 to the first half of 2023, with breeding losses exceeding 60%. Small and medium-sized ranches are once again facing the dilemma of "killing cows" and exiting.

At the 2023 China Dairy Industry Development Strategy High Level Forum held on July 19, Gao Hongbin, Honorary President of the China Dairy Industry Association, stated that China's dairy industry is currently facing the most difficult moment since 2008.

The most difficult year since 2008

"The milk collection price of my ranch has dropped to 3.6 yuan/kg, which is already lower than the cost price." Xu Gang, the head of a large ranch in Hebei, told First Financial reporters that due to his high breeding level and complete dairy farm facilities, Xu Gang's contract milk collection price has been relatively strong during this year's milk price decline, but recently it has finally "not been able to withstand".

Xu Gang said that fortunately, although the acquisition price has declined, the contracted dairy companies have not limited their income, so he still has room for expansion. But recently, feed prices have started to rise again, and milk prices are still falling, which has made him worried about the future market prospects. Currently, ranches have also begun to take measures including "killing cows" to accelerate the elimination of low yielding cows, and some cows that can be eliminated but not eliminated have also increased their elimination efforts. They use the proceeds from selling eliminated cows to make up for monthly losses, while also adopting some cost reduction methods, such as reducing unnecessary expenses, cultivating excellent reserve cows, developing integrated breeding and breeding, and saving feeding costs. In Xu Gang's view, efforts should be made to "survive first.".

In contrast, some small and medium-sized dairy companies face even more difficult times. In May of this year, this newspaper reported that many small and medium-sized dairy farmers in China had contracts broken and had to kill cows to withdraw.

At today's forum, Gao Hongbin stated that both processing and livestock enterprises are facing serious difficulties, which is also the most difficult year for the industry after the melamine incident in 2008. In the past three years of the epidemic, driven by consumer demand, the consumption growth rate of the domestic dairy industry has far exceeded that of the past decade. However, the industry is currently facing weak consumption, declining milk prices, and rising costs, which have caused huge difficulties and pressure for enterprises.

The latest milk prices from the Ministry of Agriculture and Rural Affairs show that the average price of fresh milk in 10 major producing provinces, including Inner Mongolia and Hebei, is 3.77 yuan/kg, down 0.2 yuan from 3.97 yuan/kg in March and further from the previous high point of 4.36 yuan/kg in August 2021.

Recently, feed costs have also risen again. According to WIND data, the average spot price of soybean meal fell in early 2023, dropping to around 3808 yuan/ton in March, but has recently rebounded to 4332.6 yuan/ton; The average price of corn in 22 provinces and cities has also rebounded to 2866.2 yuan/ton, which is a significant rebound from the lowest of 2743.9 yuan/ton in May 2023.

Generally speaking, feed costs account for approximately 65% to 70% of the cost of dairy farming. Song Huiting, Chairman of Jiangsu Jiahui Biotechnology, told First Financial reporters that large farms without debt generally have a production cost of around 3.8 yuan per kilogram of milk. At the current milk price level, except for the top 20% to 30% of farms in industries with particularly high production levels and those with advantageous resource capabilities, it is not easy for other farms to avoid losses.

Li Shengli, Chief Scientist of the National Dairy Industry Technology System, also stated at today's forum that the upstream raw milk industry has suffered losses of over 60%, and the number of cows on hand is also decreasing. In May 2023, the number of cows on hand in the National Dairy Industry Technology System radiation ranches decreased by 3.42% year-on-year, while the number of cows on hand in radiation ranches below 3000 decreased by 6.28%. Moreover, this year's El Ni ñ o phenomenon has led to high temperatures and droughts in many parts of China, resulting in an increase in summer grain prices. Therefore, feed costs will still remain high. The next few months will also be a critical period for ranches to reserve green stored feed, and difficulties in sales and tight funds will force some ranches to accelerate their exit. But it is expected that the total surplus of fresh milk in 2023 will exceed 1.1 million tons.

How the industry can overcome difficulties

In 2014, due to the imbalance between supply and demand in the market, the domestic raw milk industry experienced a "roller coaster" cycle of ups and downs, especially from 2015 to 2018. According to data released by the China Dairy Association, 50% of domestic farms were in losses, and under the "milk dumping and cattle killing" policy, the domestic dairy cow inventory also significantly decreased. According to the statistics of the national dairy cow system, the domestic dairy cow inventory decreased from 8.57 million in 2014 to 4.71 million in 2019.

Since 2018, after hitting the bottom, domestic milk prices have entered an upward cycle. In addition to large-scale self built ranches by dairy companies, domestic farmers are also accelerating the expansion or construction of new ranches, resulting in a rapid increase in the supply of raw milk. In 2020, domestic raw milk production even reached the fastest growth rate in 13 years. That year, domestic milk production and prices completed a U-shaped reversal.

But the new cycle is coming particularly quickly. Under the influence of the epidemic in 2022, the growth of domestic dairy consumption has been weak, leading to a temporary surplus of raw milk supply, coupled with rising costs. The industry has once again entered a difficult time in the first half of 2023.

There are also many voices in the industry regarding the current difficulties encountered by the raw milk industry, some of which believe that further strengthening the upstream and downstream interest linkage mechanism is necessary.

It is worth noting that domestic downstream processing enterprises have already shouldered considerable pressure in this round of dairy industry downturn.

Li Shengli revealed that in the most difficult time of February 2023, domestic dairy companies had an average of 10800 tons of fresh milk stored in excess of powder spraying per day, accounting for 17% of the milk received. By May 2023, the daily powder spraying volume had improved from 4000 to 5000 tons.

Meanwhile, Gao Hongbin publicly praised domestic downstream dairy companies on the forum. Despite industry difficulties, large dairy companies continued to maintain their milk production. Yili and Mengniu once sprayed as much as 5000 tons and 4000 tons of powder per day, resulting in a direct loss of over 10000 yuan per ton of powder sprayed.

Before attending the China Dairy Conference, Su Hao, the executive president of Beijing Dongshi North America Pasture Technology Co., Ltd., said on his official account that the domestic raw milk output in 2022 would be 39.32 million tons. If the total net profits of 28 listed dairy companies were all 21.2 billion yuan, they would subsidize the raw milk price, but that would be equivalent to 0.54 yuan per kilogram. The space is limited. In his view, the key to solving the problem of the dairy industry is still how to increase milk consumption.

According to the 2023 China Dairy Industry Index released by Royal Netherlands Fisherland and the China Dairy Industry Association, the daily intake of dairy products by the domestic public was about 240 milliliters in 2023, and nearly 30% of the public was able to consume dairy products every day. However, this has decreased compared to 260 milliliters and 255 milliliters in 2021 and 2022.

Gao Hongbin believes that the growth of dairy consumption is positively correlated with the level of national income. Therefore, there is still a lot of room for growth in domestic dairy consumption, and it is not that it has hit the ceiling. However, the current problems encountered by the industry are not caused by the dairy industry itself. Weak consumption is a common pressure faced by various industries, but to overcome difficulties, dairy companies still need to rely on themselves. On the one hand, this relies on technological progress to increase yield, improve efficiency, and reduce costs; On the other hand, we still need to rely on the expansion of the market to increase milk consumption, among which the development of low-temperature milk products and cheese products is the main direction to break through.

In Gao Hongbin's view, the current domestic dairy industry is entering an era of pattern reshaping and survival of the fittest. The number of domestic large-scale dairy enterprises has decreased from 815 to 587, and the concentration will further increase in the future. In other developed countries, the development of the dairy industry has also followed a similar trajectory. For example, in the United States, from 2010 to 2021, the number of farms decreased from 53000 to nearly 30000, but inventory and production increased significantly.