The supply and demand of raw milk is tight, and the price inflection point is new cycle.
The international price of large packages of powder began to rise in August 2016. on the evening of January 3, 2017, the price of Fonterra full-fat powder was 3294 US dollars / ton. it is a high probability that it stabilized at a relatively high level of 3500 US dollars / ton in the first half of this year. the price of reducing milk shipped to China is about 3.50 yuan / kg. The latest purchase price of fresh milk in the main domestic producing areas has also reached 3.52 yuan / kg, the difference between international and domestic milk prices basically does not exist, and the space for domestic milk prices to rise has been opened.
The current price level more reflects the tight supply and demand situation. From a supply point of view, supply will tighten next year. Production is being reduced in several major foreign regions, retail investors are basically withdrawing from the domestic situation, and large-scale production capacity is basically achieved in the first half of the year. Domestic raw milk supply will not increase next year, but may inertia decrease. In the short term, in the extremely cold weather in northern China this winter, the cold stress effect will lead to a decline in milk production of dairy cows, and the supply may be short-term tight. From the perspective of demand, domestic demand will basically be in a relatively large stage of growth. In terms of liquid milk, 2015 is a low point in demand, 2016 is better than 2015, in the recovery stage, next year will be better, overall will show a steady rise. In terms of solid milk, 16 years after the full release of the second child, there has been a significant increase in newborn growth compared with previous years (the number of babies is expected to be 17.5 million), and we expect the demand for milk powder to grow by 15-20 per cent next year.
Raw milk related business will be the biggest attraction of the company next year.
In terms of cow stock, the number of cows that the company can actually control (self-management and joint ventures) is about 50, 000, which can affect the purchase and control of the purchase price. The company has produced 3202.92 tons of fresh milk in November, an increase of 5.5% over the same period last year. As the company has plenty of milk, I'm not worried about milk grab. From the perspective of raw milk prices, with the continuous rise in international milk prices, domestic raw milk prices may gradually exceed expectations. The price of large packages of powder exported to Xinjiang has exceeded 30,000 / ton, and the purchase price of raw milk has also exceeded 3.5 yuan / kg. The domestic milk price is rising obviously in the future. Western animal husbandry, as an enterprise with a large upstream farming layout, will fully benefit from the rise in domestic milk prices in the first half of the year and directly contribute greater profits to the company.
Products such as milk powder and yogurt have explosive potential.
With the promotion of consumption upgrading, while the demand for dairy products in Xinjiang is growing, the demand of mainland consumers for characteristic products in Xinjiang is also growing at a high speed. The high growth of Tianrun dairy industry is not an isolated event, and the rapid growth of ice cream yogurt, old yogurt and other products under western animal husbandry is also worthy of attention. At the same time, whether it is Tianrun dairy and western animal husbandry, the better the sales of end products, the greater the demand for raw milk in western animal husbandry, which will further promote the growth of raw milk-related performance.
In addition, the company's infant milk powder sales are also relatively smooth, milk powder business has begun to show growth opportunities. The two enterprises in Xinjiang with infant milk powder production licenses are subsidiaries of western animal husbandry. Their milk powder products such as "Mingxing", "Love Baby" and "Xiyue" have been listed and have been laid out in Shaanxi, Gansu, Xinjiang and other places this year. Market channels begin to gradually expand, and next year it is expected to get a piece of the pie after the milk powder industry improves.
The layout of beef is improving day by day, and the slaughtering project of imported beef cattle has been put into production.
The layout of the company's beef business is also improving day by day. Karwan Foods, a wholly-owned subsidiary, is mainly engaged in cattle and sheep slaughtering and processing business, with an annual production capacity of slaughtering 50, 000 cattle and 1 million sheep. At the same time, the company has the largest purebred "Red Angus" beef cattle population in Northwest China, with a breeding scale of about 10,000 beef cattle. In 2015, relying on Zhejiang Yiheng Animal Husbandry, the company invested in Cixi to build an "isolation slaughtering project for importing 100000 Australian beef cattle a year", which is expected to be put into production. Its cost advantages and location advantages will help the company to expand the beef market in East China and even the whole country, and the project is expected to become a new profit point for the company.
Generally speaking, although the market is quite different to the company, no matter from the perspective of the industry cycle, or from all aspects and conditions of the company's own business, we all think that the company has reached an inflection point. Recently, the company's stock price has been greatly adjusted, and we think that the company will be more flexible next year, so we suggest that we should focus on bargain hunting. Maintain the buy rating with the first target price of 22 yuan.
