Whereas the financial institution’s outlook evaluation advised that farmer margins would enhance in most areas because the 12 months progresses, in China, the expectation is for uncooked milk worth to possible keep low, mentioned Michelle Huang, Shanghai dairy analyst for Rabobank.
- AustAsia Group Ltd expects to report a consolidated web lack of roughly RMB 450 million to RMB 500 million, in contrast with the online revenue of roughly RMB 158 million ($23.4 million) for the 12 months ended 31 December 2022.
- China Trendy Dairy is predicted to report a web revenue for the 12 months ended December 31, 2023, within the vary between RMB160 million to RMB200 million (2022: roughly RMB580 million), representing a lower of roughly 66% to 72% YOY. The estimated vary of the money EBITDA is between RMB 2,400 million and RMB 2,500 million (2022: RMB 2,740 million), representing a YoY lower of roughly 9% to 12%. 3)
- China Youran Dairy Group anticipated to report a loss attributable to the homeowners of the Firm of roughly RMB 1,030 million to RMB1,070 million (revenue attributable to the homeowners of the corporate for FY2022 RMB 415 million).
She additionally clarified that China’s Nationwide Meals Security normal on liquid milk is unlikely to affect this 12 months’s commerce, particularly complete milk powder imports. “The usual remains to be below public assessment and has not been carried out but,” she mentioned. “Contemplating the time [required to implement it], the brand new normal on 2024 WMP imports shouldn’t be a key influencing issue.
“Within the meantime, prime two gamers like Yili and Mengniu, who maintain 87% of the UHT worth share, have already used domestically sourced uncooked milk to provide UHT white milk. As soon as the brand new normal is carried out, this could solely have an effect on smaller gamers (lower than 20% UTH share) that used to import WMP and use reconstituted milk in UHT.”
The report additionally highlighted that China’s main dairy farming firms had posted web revenue loss warnings. Huang mentioned that these firms had been AustAsia Group, China Trendy Dairy and China Youran Dairy Group (see box-out for extra info). “The possible causes behind it is a weaker-than-expected demand and decrease gross sales costs for uncooked milk and the lower available in the market worth of beef cattle and heifers in China,” the analyst concluded. “The gross revenue margin is decrease than in 2022, largely due to decrease milk worth and relatively increased feed prices.
“Internet revenue impacted by a loss arising from modifications in truthful worth much less prices to promote of organic property (the “Revaluation Loss”), which was primarily as a result of affect of the lower within the promoting worth of uncooked milk and the lower available in the market worth of beef cattle and heifers in FY2023.”
Commerce coverage ‘on the forefront of farmers’ minds’ forward of US election
Lucas Fuess, senior dairy analyst at Rabobank, instructed us commerce coverage could possibly be the one most vital issue with regards to who US dairy farmers choose for president in November.
“A number of matters will possible be on the forefront of farmer’s minds main as much as the US election,” he defined “A wide range of matters pushed by federal authorities coverage can affect dairy costs, together with commerce coverage, sustainability necessities, vitamin tips, or meals help program (SNAP, WIC) funding ranges.
“Commerce coverage is probably going on the forefront of those themes, as dairy exports have grown lately to symbolize a extra important share of general US milk output.
“Farmers will bear in mind the various and divergent approaches lately that each political events have taken in direction of commerce coverage, tariffs, and new entry to overseas markets.”
Rabobank mentioned it anticipated subdued export gross sales in US cheese and butter, however Fuess clarified: “It is very important keep in mind that weaker US export gross sales throughout practically all dairy product classes in 2023 had been following a report export 12 months as measured on each a quantity and worth foundation in 2022; though 2023 exports had been down, they had been nonetheless stronger than the long-term common.
“Nonetheless, decrease demand from a wide range of international locations was a headwind for milk costs in current months, with many Asian nations shopping for much less US dairy at the same time as Mexico purchases elevated.
“Rabobank expects US cheese costs can be aggressive versus different key dairy exporting areas, together with the EU and New Zealand, pushed by expanded US cheese processing capability and subdued home demand. This might help US cheese exports this 12 months as international consumers, particularly these in Mexico, flip to the US for essentially the most inexpensive product.
“In butter, it’s the reverse story, with US and international costs firmly elevated. The US doesn’t export enormous volumes of butter, and with out a aggressive US worth reverse the remainder of the world, there may be little incentive for overseas consumers to supply product from the US. Butter worth draw back is restricted although as home wants stay strong.”
As for the probability of a extra long-term return to profitability, given the general ‘sluggish however regular’ enhance in costs that Rabobank expects to materialize over the 12 months, Fuess mentioned: “The worth restoration shouldn’t be the identical amongst all dairy merchandise or from all key exporting areas, however when generalized, barely improved demand will overcome nonetheless sluggish milk provide to general help costs.
“In actual fact, butter costs across the globe have seen agency help in current weeks, however within the heavier-traded skim milk powder market, we’ve seen a slower worth restoration.
“It’s tough to proclaim {that a} long-term return to profitability is probably going; as an alternative, market volatility ought to proceed to be a persistent drive in dairy markets.”
Lastly, is there scope for enchancment within the dairy merchandise Client Value Index (CPI)? “The current year-over-year declines within the dairy product CPI are pushed by a mixture of excessive prior 12 months comparable knowledge factors coupled with decrease milk costs in 2023 versus 2022 that trickled by means of to the buyer within the type of decrease priced dairy merchandise,” Fuess defined.
“Wanting forward, this weak spot will possible persist within the close to time period as CPI positive aspects had been strong all through the primary half of 2023, however later this 12 months, the dairy product CPI might return to optimistic based mostly on anticipated sluggish however regular dairy commodity worth will increase which are anticipated over the subsequent a number of months.”
