Understanding the Market | Dairy Stocks Surge in the Morning as Raw Milk Prices Stabilize Recently, Industry De-stocking Expected to Accelerate in the Second Half of the Year
Dairy stocks rose broadly in the morning, with YOURAN DAIRY up 5.74% and CH MODERN D up 3.36%. After a four-year downward cycle, raw milk prices have recently stabilized at a certain stage, with a slight increase in the average price in major producing areas. Guosheng Securities pointed out that the narrowing decline in milk prices will lead to profit recovery, although the industry still faces loss pressure and the trend of capacity reduction continues. Tianfeng Securities believes that milk prices are supported by holiday demand in the short term, but the trend of destocking continues, and the turning point of the milk price cycle is worth looking forward to
According to the Zhitong Finance APP, dairy stocks rose broadly in the morning session. As of the time of publication, YOURAN DAIRY (09858) rose 5.74% to HKD 3.13; CH MODERN D (01117) rose 3.36% to HKD 1.23; China Feihe (06186) rose 1.95% to HKD 4.18; and China Shengmu (01432) rose 1.59% to HKD 0.32.
Guosheng Securities released a research report stating that after a four-year downward cycle, raw milk prices have recently stabilized. The average price of raw milk in major production areas nationwide has increased from RMB 3.02/kg in August to RMB 3.04/kg by the end of September. The price of raw milk in Ningxia has risen from RMB 2.1-2.2/kg to RMB 3.5-3.7/kg. This is driven on one hand by the demand for gifts during the Mid-Autumn Festival and National Day, and on the other hand by a natural decline in supply during the "heat stress" phase for dairy cows from July to September. This round of milk prices is nearing the end of the downward cycle, and with the acceleration of herd reduction, a turning point is expected. However, with the increasing proportion of large-scale farms, the fluctuations in milk prices will be significantly smoothed. For dairy companies, the narrowing decline in milk prices and reduced losses from culling cows will lead to profit recovery on the financial statements.
Tianfeng Securities pointed out that since September, although the stocking up before the two festivals and the demand for student milk production have driven a rebound in raw milk prices in some regions, the overall milk prices in major production areas remain stable. Currently, milk prices are still below the cost line, and the industry's losses and the financial pressure from silage continue to exist. Capacity reduction continues, with the number of dairy cows in September decreasing by 0.18% month-on-month (compared to a decrease of 0.2% in August), with a cumulative reduction of about 8%. The firm believes that although the two festival factors provide short-term support for milk prices, the trend of dairy companies reducing production capacity continues. Once the support from holiday consumption weakens, the reduction trend may not need to be overly concerned. Currently, capacity reduction may be nearing its end, and a turning point in the milk price cycle is worth looking forward to
