Summary: China's worsening milk surplus has dragged the price down further in July.

In the week ended 11 July, China's raw milk price averaged USD454.6/t (RMB3,240/t), down 0.3% from the first week of the month and down 13.8% YoY.

Feed market:

• The national price of corn averaged USD363.4/t (RMB2,590/t), up 0.4% from the first week of the month but down 12.8% YoY; the average price in major production regions (Heilongjiang, Jilin and Liaoning) was up 0.4% to USD336.8/t (RMB2,400/t); and the price in the main demand area, Guangdong, up by 0.8% to USD376.1/t (RMB2,680/t) from the first week.
• The national price of soybean meal averaged USD508/t (RMB3,620/t), down 0.8% from the first week of the month and down 17.5% YoY

The problem of milk surpluses has become more acute in China. According to the National Bureau of Statistics (NBS), the national raw milk production in H1 2024 was 18.56 million tonnes, up by 3.4% YoY. A survey from the National Dairy Industry and Technology System has estimated that from April to May, the average spraying of raw milk by dairy firms reached 20,000 tonnes per day, accounting for 25% of the volume of raw milk traded, though the number dropped to 8,000 t/d in late June, representing 11% of the total raw milk traded in the month. By the end of June, total sprayed milk stocks held by large dairy manufacturers had reached more than 300,000 tonnes.

In May, for the first time since records began, the national average price of raw milk fell below the average production cost, with 80%+ of dairy farms reporting a loss. AustAsia Group Ltd. (Stock Code: 02425.HK), one of the dairying leaders, predicted a net loss of -USD84.2 million (-RMB600 million) to –USD98.2 million (-RMB700 million) in H1 2024, following the loss of –USD43.5 million (-RMB310 million) in H1 2023, mainly due to the decreases in its selling price of raw milk and dairy cows by 16% and 17% YoY, respectively.

Reference trading prices for raw milk in major regions in Q3/H2 2024:

• Shandong: USD421.0/t–USD519.2/t (RMB3,000/t-RMB3,700/t) in Q3
• Hebei: USD456.0/t (RMB3,250/t) in Q3
• Shanghai: USD575.3/t (RMB4,100/t) in H2 2024
• Sichuan: USD631.4/t (RMB4,500/t), with a minimum price of USD606.2/t (RMB4,320/t) in H2