CLSA: Sell The Milk And Milk Processors

CLSA: Sell The Milk And Milk Processors Positions must be cut entirely on pure Milk re-sellers like Anik, Modern, Heritage and Kwality Dairies, while exposure reduced to Britannia and Nestle.
China's Milk Dairies are sinking deep into the Red as Raw Milk prices rise, and the PRC Government imposes price controls on Milk and Milk products sold in Greater China region.
-Local Dairy Associations in Inner Mongolia, Heilongjiang and Shandong provinces have reported tight supplies of Raw Milk, with no signs of supply shortfalls easing in the near future.
-As price of Grain and Feed Stuff rises Breeding of Cows has been stopped in most Milk producing regions of China, with many farmers resorting to Culling the cows.
-As a pure statistic the number of Cows in the Shandong province have declined by 50 per cent in the period 2003-07.
-Very surprisingly new Milk processing plants have been set up in Shandong, Yili, Mengniu adding to the fierce competition that prevails in procuring Raw Milk.
-Raw Milk prices have consequently risen 67 per cent in the past 2 years, most of the price increases have not been passed on to consumers leading to a massive reduction in operating margins for Dairy producers.
-As a thumb rule, if Raw Milk prices rise by 5 per cent operating margins sink by 31 per cent.
A similar scenario could prevail in India as well, which is seeing the price of grain and raw feed prices going up in rural areas with direct and indirect price controls being imposed on Milk prices.
Positions must be cut entirely on pure Milk re-sellers like Anik, Modern, Heritage and Kwality Dairies, while exposure reduced to Britannia and Nestle.

With 150 tonnes of raw milk processing setting up in March by China Milk, look for further upside.
What about the bull sperm business ? It should be relatively unaffected as with the demand for raw milk, and limited land in China, there should be steady demand for high yielding bull sperms.