Source: Blue Whale Finance The shadow of price increases has spread to the dairy industry. Amid the intense Double 11 shopping festival, the shadow of price increases has spread to the dairy industry. Recently, according to Reuters, Fonterra announced it has raised its forecast milk solids price per kilogram from NZ$7.25-8.75 to NZ$7.90-8.90. Additionally, in September this year, the Global Dairy Trade (GDT) held two online auctions, with milk powder price indices all rising. Compared to the previous auction, at the 291st auction held on September 7, skim milk powder auction price was $3,274 per ton, with the price index up 7.3%; whole milk powder was $3,691 per ton, up 3.3%. At the 292nd auction on September 21, skim milk powder was $3,302 per ton, up 0.9%; whole milk powder was $3,777 per ton, up 2.2%. Will the increase in milk powder raw materials force manufacturers to raise formula prices? Most formula companies deny price hikes Only Nestlé has slight increases on some products Feihe, Mead Johnson, A2, and Ausnutria all told Blue Whale Finance reporters that they have not adjusted prices. Feihe stated it has no price increase plans, and its retail prices have never been raised. Wyeth also said its Qibin and Bozhen series currently have no price adjustment plans. Only Nestlé mentioned that a few special medical formula products had slight price adjustments (around 5%). Beingmate, in its investor relations activity record, revealed that if raw material prices rise, the entire industry has price adjustment expectations, and if necessary, the company will adjust prices based on industry conditions. In offline visits, Blue Whale Finance reporters found that there is currently no news of formula price increases at the channel level, but many imported formulas are out of stock. A staff member at a LeYou mother-and-baby store told Blue Whale Finance that due to the pandemic, customs clearance for imported formulas has been delayed, and Friso is often out of stock. Not only in mother-and-baby stores, but even in supermarket channels like Walmart, having two cans is considered good. The same applies to A2 and Wyeth Qibin. A promoter for Royal Friso told Blue Whale Finance that Friso has not raised prices, remaining at 396 yuan per can, with promotional prices around 340 yuan per can. The out-of-stock situation at the terminal is due to the pandemic requiring disinfection at every step, lengthening the timeline. A quota system has been implemented at the terminal, giving each store two or three boxes of product, and old members quickly consume six cans per person. If you go directly to the store, you might not find stock, but if you add the store's WeChat, it's not difficult to buy when stock arrives. Raw material cost share is minimal Short-term formula price increase unlikely In fact, after the price war in 2019, formula companies just underwent a round of price adjustments in 2020. According to incomplete statistics, in 2020, at least 17 brands in the domestic formula market, including Feihe, Yili, Junlebao, Biostime, and Mead Johnson, adjusted prices. Most companies attributed the increases to rising costs. Therefore, industry insiders analyze that the compensation for the previous round of competition was essentially realized through price increases in 2020. Considering the national fertility policy direction, it is expected that formula companies will not raise prices again in the short term. Furthermore, although international formula raw material prices are volatile, there is still room for correction in the long run. Senior dairy expert Song Liang told Blue Whale Finance that the rise in skim milk powder auction prices is related to auction volumes and the depreciation of the US dollar. While international milk prices are rising rapidly, they also face issues like insufficient momentum later. The large bag powder is mainly Fonterra reducing auction volumes to maintain prices. It is estimated that this trend will last until March next year, after which it will fluctuate downward and not be sustainable. However, global consumption power is declining, and prices of bulk commodities such as grains, soybeans, and fresh milk are all correcting. But the inflation of global commodity prices caused by the US dollar depreciation has played an important role in supporting overall formula prices. Affected by the pandemic, freight costs have indeed doubled. This round of raw material price increases is still short-term, and the possibility of spreading to formula price increases is low. From the perspective of domestic milk prices, although there is some increase, it is not high. Dairy expert Wang Dingmian told Blue Whale Finance that in October last year, the average price of fresh milk in China was 3.95 yuan per kilogram, and this October it rose to 4.38 yuan per kilogram. The increase is less than 0.5 yuan per kilogram, a rise of 10%. "The production cost of a can of formula is about 70 yuan, accounting for only one-quarter to one-fifth of the total cost. Even if raw material prices rise by 20%, it only brings a few yuan increase in cost, which does not constitute a major factor in formula price increases." In addition, since last year, against the backdrop of rising milk prices, large dairy companies such as Yili, Mengniu, Feihe, and Bright have either acquired or taken stakes in upstream operations, or expanded production, to control the upstream and ensure stable milk source prices. Feihe told Blue Whale Finance that in response to the rise in some imported raw material prices, as a large purchaser, Feihe enjoys bargaining power in procurement, and given earlier considerations of pandemic impacts, Feihe has already placed orders for imported raw materials. This round of raw material price fluctuations has a relatively low overall impact on Feihe. Song Liang believes that rising milk prices will increase production costs for dairy companies and offset net profits. But at the same time, it will encourage dairy companies to strengthen control over upstream milk sources, adjust product structures, and allocate domestic and international resources to reduce costs, which is also an advantage of large dairy companies. Are you "watching" me?