China’s unpasteurized milk producers are having a hard time because the market is flooded with too much milk because there are too many dairy cows and not enough people want milk. This has caused prices to drop to unprofitable levels while the cost of feed keeps going up, and there doesn’t seem to be an end in sight.
Raw milk is in a cyclical period of oversupply, and prices have been going down since the middle of last year. An independent dairy industry analyst, Song Liang, told Yicai Global that prices will go down even more in 2023. He also said that things will only get better when demand goes up.
A person who works at a large farm in northern Hebei province, which is close to Beijing, told Yicai Global, “The situation is not good.” Even before the Lunar New Year holiday at the end of the month, when many dairy product makers usually stock up on milk, the market continues to cool.
According to the Ministry of Agriculture and Rural Affairs, the price of unpasteurized milk in 10 major milk-producing regions, including the Inner Mongolia Autonomous Region, dropped 4.2% from the same time last year to CNY4.12 (USD0.59) per kilogramme in the last week of December.
The price at large farms was between CNY4.20 and CNY4.30 per kg in the middle of last year. By the end of the year, it had dropped to between CNY3.90 and CNY4 per kg. In fact, prices have gone down to CNY3.80 per kg in the northwest of Ningxia Hui Autonomous Region.
As if that wasn’t bad enough, the price of animal feed like soybean meal, corn, and alfalfa has gone up a lot in the past year, cutting into milk producers’ profits. About 70% of what it costs to make milk goes to feed.
Li Shengli, chief scientist at the National Dairy Industry and Technology System, said that the average price of fresh milk should be at least CNY4.30 per kg. This would give producers a basic profit margin of 8%.
The person at the Hebei farm said that producers of cheese, yoghurt, and other dairy products are not able to order more milk. A big farm can make it through hard times, but smaller farms may have to sell their cows, raise beef cattle, or even close down.
And things are so bad that some customers have decided not to renew their contracts to buy in 2023.
Vicious Cycle
Song Huiting, chair of Jiangsu Jiahui Biotechnology, said that the size of dairy herds has grown too much in the past three years, which is also a reason why there is a mismatch between supply and demand right now. According to estimates, the number of dairy cows rose by 37 percent from 2019 to 2020, going from 4.5 million to 6.3 million.
Song Liang said that the market for unpasteurized milk has become stuck in a cycle of “milk shortage, price markup, cattle breeding, oversupply, cattle culling, and milk shortage.” To solve the problem, it needs to look into conglomeration and linking upstream and downstream capacity.
Several insiders told Yicai Global that the raw milk sector will be under even more pressure if the market doesn’t recover during the Spring Festival holiday.
