The price of soybean meal broke through the 5,000 yuan/ton mark, and the purchase price of raw milk fell below the break-even point. Mr. Wang, a dairy farmer in Tianjin, bluntly said that the ranch was under great pressure this year.

In addition to small and medium-sized ranches, the latest financial reports of Modern Animal Husbandry, China Shengmu, and Original Ecological Animal Husbandry also mentioned the pressure of rising feed costs, and cost reduction and efficiency enhancement have become the key words for large animal husbandry companies to maintain performance growth.

  Zhu Xiaohui, CFO of Modern Dairy, said at the performance conference on March 30 that due to the high cost pressure of small and medium-sized pastures, the next few months may be a window period for the low-cost expansion of Modern Dairy.

At the same time, Modern Dairy expects the turning point of feed prices to appear in the middle of this year.

  Li Shengli, chief scientist of the National Dairy Industry Technology System, said that the cost of kilograms of milk feed in 2022 is expected to increase by 3% to 5% compared with 2021, and the average milk price needs to be maintained above 4.3 yuan/kg, in order to obtain better returns from farming.

"China's dairy industry is a sunrise industry. Although there are repetitions and setbacks in the middle, the overall upward trend remains unchanged. It is expected that there will be a golden period of 20-30 years."

  Rising feed costs put pressure on dairy companies

  "The price of feed has risen sharply this year, especially protein feed. The current price of soybean meal is 5,600 yuan/ton, compared with 3,330 yuan/ton in the same period last year, an increase of more than 2,000 yuan per ton." Yu Bangqiang, a dairy farmer in Shandong, told the Beijing News reporter, Since the beginning of this year, the cost of its kilogram of milk feed has risen by about 0.6 yuan.

  Also feeling the rise in feed prices is Zhang Shunqi (pseudonym), a dairy farmer in Shandong.

At the end of last year, the price of soybean meal he purchased was around 3,500 yuan/ton, and by February this year, it had risen to 4,100 yuan/ton. "The price of all protein feeds has risen, ranging from 200 to 600 yuan per ton."

  In addition to small and medium-sized farms, large-scale farms are also facing cost pressures.

According to Modern Dairy's 2021 financial report, the cost of its kilogram of milk feed is 2.67 yuan, a year-on-year increase of 0.38 yuan.

Among them, the direct feed cost of kilogram milk was 2.11 yuan, a year-on-year increase of 0.34 yuan.

Another large animal husbandry company, China Shengmu, will cost 2.6 yuan per kilogram of milk feed in 2021, a year-on-year increase of 23.2%, which also leads to a decline in its gross profit margin.

In this regard, large-scale animal husbandry companies generally reduce costs and increase efficiency by increasing unit yields, adjusting feed ratios, increasing high value-added milk sources such as organic milk and DHA milk, and deploying feed and beef cattle businesses.

  Rising feed costs have also caught investors' attention.

At the performance conference held on March 30, Zhu Xiaohui, CFO of Modern Dairy, said frankly when answering questions from investors that the current feed cost has risen sharply in terms of both the historical period and the cost ratio.

The price of soybean meal and corn has driven the cost of milk production to rise. "Even if the price of milk is maintained at more than 4 yuan per kilogram, the cost of raising cattle and the price of milk are only basically the same."

  Li Shengli, chief scientist of the National Dairy Industry Technology System, pointed out in a webinar held at the beginning of this year that the price of dairy feed in my country will remain high in 2022, and the price of forage for silage and long hay will increase by 15%-20%, which will drive dairy cattle. The share of roughage costs will rise from 33% in 2021 to 38% in 2022.

The average domestic raw milk price needs to be maintained at more than 4.3 yuan/kg in order to ensure basic profit margins and farmers to obtain stable income.

  Sun Yugang, executive president of Modern Dairy, predicted that "the inflection point of feed prices is expected to appear in the middle of this year."

  The industry expects milk prices to be "high and stable" this year

  In the case of rising feed costs, many farmers reported that the price of milk this year did not rise but fell, and the pressure on ranch management became prominent.

  Mr. Wang, a dairy farmer in Tianjin, told the Beijing News that in February this year, the price of his raw milk dropped from 4.1 yuan/kg to 4.3 yuan/kg to 3.8 yuan/kg, while the break-even point of his milk price was 4.3 yuan/kg. .

"The price of almost all raw materials has been rising recently. The comprehensive feed cost of our ranch has risen by about 30 cents per kilogram. Coupled with the decline in milk prices, the ranch is currently at a loss."

  Compared with Mr. Wang, the milk price that Yu Bangqiang signed with the dairy company is 4.8 yuan/kg to 5.2 yuan/kg, but the price of raw milk sold by his surrounding farms has dropped to about 4 yuan/kg.

"For medium-sized farms, the milk price of about 4 yuan/kg is at a low profit or loses money, depending on whether the farm's corn silage purchases last year are good or not."

  The upstream dairy industry magazine "Holstein" recently reported citing monitoring data from the Ministry of Agriculture and Rural Affairs that the price of domestic fresh milk has continued to fall since August last year. At present, the price of milk in some areas has fallen below 4 yuan/kg. Dairy farming is already losing money.

  Compared with the decline in domestic milk prices, international milk prices are on the rise.

New Zealand dairy giant Fonterra's average cost of raw milk rose by nearly 30% in the first half of fiscal 2022, hurting profits.

In this regard, Zhou Dehan, CEO of Fonterra Greater China, said that the strong global demand for dairy products, coupled with the macroeconomic environment of inflation, has caused milk prices to rise sharply.

  "It is expected that the price of milk will remain at a high and stable level this year." Sun Yugang believes that the current overseas auction prices of large-package powder are rising, and it is difficult to replace domestic milk sources. Therefore, there will be no impact on domestic milk prices around 2014. .

  Zhu Xiaohui believes that the main reason for the recent correction in domestic milk prices is the phenomenon of milk grabbing last year. The milk price in some regions soared to 6 yuan/kg, which "caused the whole milk price last year to be abnormal."

From the analysis of the relationship between raw milk supply and demand, the current growth rate of the demand side is around 5%, and the growth rate of the supply side is expected to remain at around 7%. It seems that the demand has narrowed, but the contradiction between supply and demand has not been resolved.

With more and more infant milk powder and cheese turning to fresh milk manufacturing, and the recent rise in the price of overseas bulk powder, the price of fresh milk has been restored to be higher than the domestic milk price. Therefore, Zhu Xiaohui judges that the 5% demand growth rate is a Conservative data.

  Large animal husbandry group continues to expand

  Affected by factors such as the continuous decline in the number of dairy cows, the shortage of milk sources, and the rising demand, since the end of 2018, my country's dairy farming has entered a boom cycle, and the northern region has planned a number of milk sources.

The competition for high-quality milk sources in the downstream dairy industry is also becoming more and more fierce. Leading enterprises such as Yili, Mengniu, Guangming, New Hope, and Feihe have all participated in it. The related assets of industry and Jiangsu Huishan Animal Husbandry have become the acquisition targets.

  The data provided by Li Shengli at the above seminar shows that in 2021, there will be 166 new and expanded pasture projects in my country, with a total designed stock of 980,000 animals and a total planned investment of nearly 39 billion yuan.

81% of the newly-built and expanded pastures are located in the northern region, with Ningxia ranking first, Inner Mongolia second, and Heilongjiang third.

  Against this background, Modern Dairy announced the "Five-Year Leading Plan" in December 2020, proposing the goal of doubling both cows and milk, that is, the number of planned stocks will increase to more than 500,000 by 2025, and the annual output of fresh milk will increase to 3.6 million Ton.

Another large upstream dairy company, Youran Animal Husbandry, also recently announced that it plans to acquire a 27.16% stake in Zhongdi Dairy for HK$1.206 billion.

In order to meet the growing demand for high-end raw milk in the market, the original ecological animal husbandry plans to build two new farms in Heilongjiang.

  Some institutional investors predict that under the double attack of rising costs and falling milk prices, small and medium-sized farms may accelerate their exit.

Shandong dairy farmer Yu Bangqiang confirmed to the Beijing News reporter that since 2020, the number of farms with a thousand heads within 100 kilometers has been reduced from 5 to 2. "If the future benefits are not good, I may turn to beef cattle breeding or quit".

  Zhu Xiaohui revealed at the performance conference of Modern Dairy that the rising cost of pastures has brought some opportunities to Modern Dairy, and the company is expected to complete the target ahead of schedule by the end of 2024 or the first half of 2025.

He judged that it is difficult for small and medium-sized farms to hedge the feed market and purchase large-scale feeds, and the cost pressure is relatively high. The next few months may be a window for modern animal husbandry to expand at a low cost. "But our strategy this year is that there will be no heavy-asset mergers and acquisitions. , and will do some models such as shareholding, holding or entrusting operation, and export company management.”

  According to the financial report, in 2021, Modern Dairy will complete the 100% equity acquisition of Zhongyuan Animal Husbandry and Fuyuan International, and the 52% equity acquisition of Aoyuan Animal Husbandry and 90% of Ningxia Fuminfeng, adding a total of about 90,000 dairy cows.

In addition, Modern Dairy also adopted the lease-to-build operation model, launched the strategic cooperation project between China Dairy Industry Park and Linger Wantou Ranch, and deployed the first large-scale farm of Modern Dairy in Xinjiang.

  Guo Tie, chief reporter of the Beijing News

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