Cailian Press News on November 15 (Reporter Zhang Chenjing): Since entering November, the raw milk prices have hit a new low in this round of the cycle. As one of the historically important supplementary sources of milk, the import volume of whole milk powder has been in a year-on-year decline for 8 consecutive months. Song Liang, the head of the China Agricultural Reclamation Dairy Industry Alliance expert group, told Cailian Press reporters: "Even currently, domestic whole milk powder has begun to be exported at low prices to some major producing countries, such as Argentina."

According to the monitoring data of the Ministry of Agriculture and Rural Affairs, in the first week of November (collected on November 7), the average price of fresh milk in 10 major producing provinces such as Inner Mongolia and Hebei was 3.12 yuan/kg, a decrease of 0.3% from the previous week and a year-on-year decline of 15.9%.

Industry insiders told Cailian Press reporters that the above monitoring data mainly comes from long-term contract prices of large-scale farms. The market price of milk following the market trend has recently increased, but it is still below the industry cost line of 3 yuan/kg to 3.5 yuan/kg.

Due to the relatively weak recovery of domestic dairy consumption, the inertia of expansion in upstream farms, the imbalance of domestic supply and demand for raw milk, and the continuous decrease in milk prices over the past two years.

During the recent third quarter earnings conference of Xinjiang Tianrun Dairy (600419.SH), Chairman Liu Rang replied to Cailian Press reporters, stating that currently the raw milk production still exceeds demand, and the purchase price remains at a low level in the short term.

It is worth noting that, influenced by the domestic supply and demand situation of raw milk, imported dairy products have generally experienced a simultaneous decline in quantity and price.

According to the Dairy Industry Trade Monthly Report, in the first three quarters of 2024, China imported a total of 1.9347 million tons of various dairy products, a decrease of 13.2% year-on-year, with an import value of 8.243 billion US dollars, a decrease of 14.1% year-on-year, and converted into fresh milk, the equivalent is 11.84 million tons, a decrease of 12.3% year-on-year.

Looking at the main categories, except for increased imports of cream, condensed milk, and protein, the import volume of all other categories has decreased. The product with the largest decrease in import volume is dairy powder, down by 22.7%, followed by infant formula milk powder decreased by 14.8%, whey products decreased by 3.9%, and packaged milk decreased by 25.4%.

Previously, due to insufficient domestic milk sources, imported dairy powder was once one of China's important sources of milk due to its high cost performance.

An industry expert told Caixin reporters that the main reason is still the sluggish domestic dairy industry and weak consumption. Companies mainly focus on reducing inventory and cutting costs. Song Liang believes that the downward trend in imported dairy products will continue.

International large dairy companies' financial reports have also been affected by this.

According to the Fonterra financial report, the company's raw material business revenue decreased by 13.25% in 2024, with the business in Greater China region declining by about 19.08% year-on-year.

For two consecutive years, there has been a reduction in overcapacity, and the growth rate of the upstream raw milk supply has slowed down. Recent statistics from Shandong Province show that the number of dairy cows in the province decreased by 21.4% year-on-year in the first three quarters.

In a recent survey of Inner Mongolia Yili Industrial Group (600887.SH), the company stated that after entering the third quarter, the dairy herd structure further optimized. The reduction in the number of dairy herds combined with the decrease in per-cow output due to heat stress reactions led to a decrease in raw milk supply in the third quarter. Moreover, the third quarter is the peak season for liquid milk sales, so the supply-demand gap for raw milk narrowed in the third quarter, with a significant decrease in company's powder production, temporarily easing the oversupply situation. For the fourth quarter, it is expected that production will continue to decline year-on-year.

Song Liang further stated that this year, about 200,000 dairy cows were eliminated in the upstream sector, but the rate of increase in per-cow output was fast, resulting in no change in the overall supply-demand relationship of raw milk this year. Milk prices remain low, and the fundamentals of supply and demand are expected to adjust in the first half of next year, causing the milk price to stop falling and rebound, but the price increase will not be significant. It is expected that dairy farming will still be under pressure next year.