(Yicai Global) July 6 -- Rising raw milk sales, lower costs and steady price increases have prompted China Modern Dairy Holdings, the country’s largest raw milk firm, to forecast a 40 percent jump in profits to CNY190 million (USD26.9 million) in the first half. Its stock [HKG:1117] reported up 14.29 percent at HKD1.04 (USD0.13) in mid-afternoon on the news.

China Modern Dairy’s overall operation of its farms has remained normal and raw milk production and sales have been stable since the outbreak of the Covid-19 pandemic, despite the slight impact on transport and logistics at the outset, the Ma’anshan, Anhui province-based firm said in a statement yesterday.

The rally results from the short supply of raw milk in China, industry analysts said. The number of live Holstein cows fell from 8.57 million to 5.04 million from 2014 to the end of 2018, and to 4.7 million last year, public data show. This is because China’s environmental impact assessments are getting stricter, and small and medium pastures that fail to meet environmental protection standards are shut down. These minor players have continued to withdraw from the industry amid the epidemic, so the domestic cow inventory has further declined, pushing up prices.

“Domestic milk prices will continue to rise in the second half,” Gao Lina, chairperson of China Modern Dairy, told Yicai Global.

Raw milk prices dropped in February and March, which is the off-season after China’s Lunar New Year holiday and the coronavirus. As the epidemic eased and downstream dairy companies started promotional campaigns, overall consumption and prices rebounded. China Modern Dairy's have grown rapidly since April and have remained steady in the first half, slightly higher than in the same time last year, the company said.

Founded in 2008, China Modern Dairy is the nation’s first listed dairy firm. It has 26 farms across the country with 235,000 cows and an annual output of 139 tons.

China Mengniu Dairy and New Hope Group are the company's largest and second-largest shareholders with respective 58.15 percent and 9.28 percent shares.

Editors: Zhang Yushuo, Ben Armour