2026-01-16 02:53Summary of Dairy Industry Conference Call Industry Overview - The dairy industry is experiencing a recovery in 2026, with total milk production stable at approximately 8.3 to 8.4 million tons, unchanged from the previous year. This stability is attributed to increased yields from large farms and the reduction of capacity in social farms, while major companies like Yili and Mengniu have not faced limitations in their own milk source development, maintaining a stable overall supply [8][9]. Key Points Milk Pricing - The price of milk supplied to Yili from farms in Xuzhou is around 3.45 to 3.48 CNY per kilogram, including a transportation cost of 0.17 CNY. In contrast, prices in Inner Mongolia are lower, ranging from 2.83 to 2.86 CNY per kilogram, highlighting regional price disparities [6]. - Northern bulk milk prices increased from 2.4 CNY per kilogram at the beginning of last year to 3.2 CNY, then fell back to a stable range of 2.8 to 2.9 CNY. Southern prices have remained higher, between 3.1 and 3.7 CNY since October, driven by improved sales from Yili and Mengniu and increased competition among small dairy producers [7]. Supply Chain Dynamics - In the first half of 2026, Yili limited the purchase of fresh milk from social farms to about 75% of their quota. However, this restriction eased in October, and by November and December, full purchases resumed, with expectations of potential limitations lasting four months post-Spring Festival [5][14]. - The overall consumption of dairy products has improved in 2026, with a notable increase in market consumption compared to 2025, driven by the performance of large dairy companies [8]. Cattle and Feed Costs - The price of beef cattle has stabilized, with cull cow prices rising to around 21 CNY per kilogram, allowing for profitability in raising replacement heifers. The profit from culling a mature cow is approximately 8,000 CNY [11][20]. - Feed costs vary by region, with southern feed costs at about 1.85 CNY per kilogram and cash flow costs between 2.6 and 2.7 CNY. Northern feed costs are lower at approximately 1.63 CNY per kilogram, with cash flow costs around 2.3 CNY. The decline in feed prices has allowed most social farms to avoid cash flow losses [12][13]. Future Outlook - Yili is expected to continue limiting supply after the Spring Festival for about four months, but no further price reductions are anticipated. The market outlook for the second half of the year appears positive, with expectations of price stabilization due to competition from small dairy producers [14]. - The price of bulk milk is projected to rise in the second half of 2026, with reasonable ranges expected between 2.6 and 2.9 CNY per kilogram, and potential increases to 3 to 3.5 CNY during September to October [17]. Challenges and Risks - The proportion of calves in the Baotou region is currently low at about 30%, while a healthy range should be between 35% and 40%. This shortage poses a risk to future development and could lead to increased operational risks if not addressed [2][37]. - Some social farms have exited the industry due to financial pressures and limitations imposed by major companies, with approximately three to four farms ceasing operations in 2026 [10]. Additional Insights - The government has been supporting the development of small dairy processing plants since late 2020, which has led to increased competition for milk sources and higher prices for producers [29][30]. - The overall cash flow situation for farms in the Baotou region is relatively balanced, aided by government subsidies ranging from 5 million to 10 million CNY annually [34]. This summary encapsulates the key insights and dynamics within the dairy industry as discussed in the conference call, highlighting pricing trends, supply chain challenges, and future outlooks.