According to the long-term tracking, we believe that the supply and demand pattern of raw milk will gradually transition from tight supply to loose supply this year, or bring the inflection point of raw milk price, and the cost pressure of dairy enterprises is expected to be reduced.
The epidemic has boosted residents’ health awareness, and China’s demand for dairy products will continue to remain strong in 2022. Under the influence of the epidemic, people’s awareness of health has been strengthened, boosting the consumption of dairy products. According to the data of the Bureau of statistics, the per capita milk consumption of Chinese residents in 2020 was 13 kg, an increase of 4% year-on-year in 2019; In 2021, the per capita milk consumption of residents was 14.4kg, an increase of 10.6%, and the growth rate was significantly accelerated. According to the market visit of the Spring Festival in 2022, the strong demand situation is still continuing. Under the epidemic, people’s awareness of health is enhanced and the trend of increasing the demand for milk is strengthened. We judge that the consumption of dairy products in 2022 can continue the rapid growth in 2021.
The stock of dairy cows has increased, and the supply has entered a rapid growth. On the one hand, the number of self owned pastures of large dairy enterprises has increased. On the other hand, the rise of milk prices in recent two years has stimulated pastures to increase the stock of dairy cows. In recent two years, the stock of dairy cows has entered a period of accelerated growth. According to the forecast data of China Agricultural University, the stock of Holstein cows in China will be 5.2 million in 2020, with a year-on-year increase of 10.4%; It is estimated that the stock of Chinese Holstein cows will be 5.76 million in 2021, with a year-on-year increase of 10.7%. The stock of Chinese Holstein cows will be 6.35 million in 2022, with a year-on-year increase of 10.2%. The proportion of large-scale pastures continues to increase, and the per unit yield of dairy cows increases by 3-5% per year. It is judged that the annual increase of raw milk supply from 2021 to 2022 is 13-15%.
Supply and demand have gradually moved from tight balance to tight and loose. According to the calculation of China Agricultural University, in 2020, the output of commercial milk in large-scale dairy farms will be 68000 tons / day, the demand of dairy enterprises will be 74000 tons / day, and the gap between supply and demand will be 8.8%. Although the supply and demand data of the Bureau of statistics are inconsistent and cannot be compared completely, we can infer from the growth rate that the demand growth rate in 2021 is 10.6%, the supply growth rate is 13% – 15%, and the supply-demand gap in 2021 is (10.6% + 8.8% – 13% or15%) 4.4% – 6.4%, taking the middle value of 5.5%. Assuming that the demand growth rate continues to maintain 10% and the supply growth rate is 13% – 15% in 2022, the supply-demand gap in 2022 will be (10% + 5.5% – 13% or15%) 0.5% – negative 2.5%, that is, the tight balance between supply and demand will change to a tight and loose state.
The price of raw milk may see an inflection point, and the cost of dairy enterprises is expected to be reduced. Generally speaking, before the Spring Festival is the peak consumption season of dairy products, and after the Spring Festival enters the off-season of consumption, so the price of raw milk is relatively strong before the Spring Festival, and the price will fall after the Spring Festival. According to the survey of pastures before the Spring Festival in 2022, the price of non contract milk in Central China fell slightly before the Spring Festival, which was earlier than that in previous years, indicating that the supply of raw milk was relatively abundant. We expect that from the Spring Festival to the off-season of raw milk consumption in the second quarter, the milk price may fall slightly. In the peak season of the third quarter, the milk price rebounds again, but the pressure on raw milk price in this year will be weaker than that in 2021. For dairy enterprises, the reduction of raw milk price is directly beneficial to the cost side, and the cost of dairy enterprises is expected to be reduced. For the judgment of profit contribution of dairy enterprises, we also need to observe the investment intensity and rhythm of current sales expenses.
Investment strategy: it is suggested to pay attention to the improvement of the profitability of dairy enterprises after the decline of the cost of raw milk. Recommend leading dairy enterprises Inner Mongolia Yili Industrial Group Co.Ltd(600887) .
Risk tip: macroeconomic fluctuations lead to less than expected demand growth, cattle epidemic in breeding, resulting in a significant reduction in stock, defects in the management of dairy enterprises, etc.
