Click image for details The second dip in raw milk prices has pushed domestic raw milk companies like Modern Farming back into losses. According to the half-year report released this morning, Modern Farming's revenue was 2.34 billion yuan, but it lost 670 million yuan in the first half. The reporter learned that the main reason for Modern Farming's loss was a series of impacts caused by the decline in raw milk purchase prices. In fact, since the second quarter of this year, raw milk prices, which had just recovered, fell sharply, causing heavy losses for domestic raw milk enterprises. 1 Raw milk prices plunge 11%, hitting Modern Farming hard The announcement shows that in the first half, Modern Farming's revenue increased by 5% year-on-year, but the loss of 670 million yuan increased by about 16% compared to the same period last year. Among them, the dairy farming business segment revenue was 2.08 billion yuan, with a profit of about 250 million yuan, 100 million yuan less than the same period last year. Liquid milk product revenue was about 400 million yuan, down 38%, and generated a loss of 300 million yuan, while in the same period last year, liquid milk revenue was able to break even. Regarding changes in the liquid milk business, Modern Farming stated that the decline in liquid milk was mainly due to changes in sales model and market transition. To better leverage Mengniu's channel resources and brand building advantages, the group's liquid milk business has been under Mengniu's overall sales and marketing since May 1, 2017. It is worth noting that the second decline in raw milk prices since the first half of this year is the main reason for Modern Farming's loss. Modern Farming said that the reasons for this year's loss include multiple aspects. On one hand, the sharp decline in raw milk sales prices led to losses from changes in the fair value of the herd minus selling costs; on the other hand, losses from impairment provisions for accounts receivable, as well as non-cash losses from the cancellation of all unexercised share options due to Mengniu's mandatory cash offer. Among them, the impact of the decline in raw milk prices is the most obvious. The announcement shows that although Modern Farming further increased milk production per cow through technical improvements and reduced raw milk costs, the raw milk purchase price fell from 4.04 yuan/kg in the same period last year to 3.59 yuan/kg, a decrease of 11%, leading to a significant reduction in raw milk business profits. Due to the decline in raw milk prices, Modern Farming had to accelerate the culling of lower-yielding cows to control production capacity. The higher culling rate and the decline in milk prices led to a reduction in the fair value of the herd, resulting in a loss of 497 million yuan. In addition, the loss from accounts receivable provisions in the first half was 156 million yuan, mainly due to the change in sales model and market transfer of the liquid milk business, which led to reduced business with original distributors and longer accounts receivable periods. At today's performance briefing, Modern Farming's management stated that in the upstream farming segment, "increasing production, reducing costs, and stopping losses" remains the core goal for the second half. Facing industry difficulties, Modern Farming will continue to explore its own potential to ensure the completion of the second-half operating targets. In the downstream own-brand milk business, the group will collaborate with Mengniu, innovate continuously, and explore broader markets. It believes that the short transition period will soon end, and collaboration will be more conducive to the long-term stable development of the brand milk business and allow the group to focus more on upstream operations. 2 Raw milk prices hit second bottom, recovery unlikely soon According to fixed-point monitoring by the Ministry of Agriculture, in the 3rd week of August (collection date August 16), the average price of fresh milk in 10 major dairy cow producing provinces (regions) such as Inner Mongolia and Hebei was 3.41 yuan/kg, close to the historical low of raw milk prices. After the Spring Festival in 2017, the demand for raw milk from major dairy companies decreased, leading to a short-term oversupply in the raw milk market, thus causing raw milk prices to fall. Previously, Yuan Yunsheng, secretary-general of the Hebei Dairy Association, said in an interview that due to supply and demand, fresh milk supply exceeded demand, causing prices to fall. According to past market patterns, before the Spring Festival is the peak consumption season, and after the Spring Festival consumption declines, but normally there should be a rebound. However, this year consumption has been at a low point, and the peak season is not prosperous. Dairy companies purchase fresh milk, but due to poor sales, they spray-dry the fresh milk again, so prices are difficult to rise. At the same time, dairy companies have again limited purchases, with major dairy companies currently limiting purchases by about 10%. In fact, after the previous raw milk crisis, a large number of small and medium-sized farmers exited the market, and milk prices rebounded quickly. Dou Ming, editor-in-chief of Holstein Dairy Farmers Club and Holstein magazine, said that in 2016, the national raw milk supply declined, with a decrease of more than 5% in major domestic production areas. At the same time, international milk prices also began to rise, which was the background for the rebound in raw milk prices at the beginning of the year. But in the first half of this year, domestic raw milk supply increased, and dairy imports also grew, but market consumption did not increase, objectively causing domestic raw milk prices to fall again. The reason is still oversupply. It is understood that this round of milk price decline is no less severe than the previous raw milk crisis. Many dairy companies offer medium-sized farms purchase prices of only 2.8 to 2.9 yuan/kg. "The price of 2.8 yuan has fallen below the cost line. The cost of a general farm is at least about 3.2 yuan/kg," said dairy expert Wang Dingmian. "This year, milk prices are unlikely to be prosperous. It may improve only in March-April next year." However, in Wang Dingmian's view, in this oversupply, the production capacity invested overseas by domestic dairy companies also played an important role. Major domestic dairy companies including Mengniu, Yili, and Bright Dairy have made large-scale layouts overseas, but overseas market space is limited, and these production capacities are difficult to digest overseas, eventually flowing back to the Chinese market for sales. At present, the domestic market capacity is also limited. When external cakes come in, the domestic cake becomes smaller. In fact, Modern Farming is not the only one facing the dilemma of falling raw milk prices. Original Ecology Ranch, also a raw milk company, is also having a hard time. Original Ecology Ranch issued an announcement that in the first half, the company's revenue was 490 million yuan, a year-on-year decrease of 4.3%; during the period, it lost 17.179 million yuan. Due to the continuous increase in imported milk powder, the oversupply of raw milk in the upstream market, and the impact of the global economic environment, domestic raw milk prices remained low. The milk price was 3,845 yuan per ton, down 4%. In 2016, this price was 3,979 yuan, and in 2015, it was 4,427 yuan. Source: Sina Finance Click image for details The Third (CFIC) China FMCG + Internet Conference will be held in Chongqing in October 2017. At this conference, New Distribution has invited 1,000+ distributors, 500+ brand owners, founders of 200+ B2B platforms, and 100+ investment and financing institutions to participate. The theme of this conference: New Forces, New Ecosystem. We will invite well-known domestic B2B industry experts, mentors, and B2B platform founders to discuss the following topics:
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********Leaders from Alibaba, Eternal Asia, Best Dianjia, GLP, Unilever, Haiding, Yunmei Group and other well-known enterprises will give speeches on site to express pioneering views. October 17-18, 2017 Chongqing International Expo Center Registration is now open. Long press the QR code below or click "Read Original" to register. Early bird tickets before September 15 enjoy a 30% discount! Add friend and note "Conference Registration" Click the links below to review the first and second FMCG + Internet conferences: 2016 "FMCG + Internet" Summit Forum 2017 (Second) China FMCG + Internet Conference Click the links below to review the first and second FMCG + Internet conferences: 2016 "FMCG + Internet" Summit Forum -END-