(Yicai) Aug. 7 -- A number of milk producers in China said they expect substantial losses for the first half of the year, after oversupply and insufficient demand combined to push prices below cost. This quarter is unlikely to bring much cheer either, according to industry insiders.

Modern Farming Group likely had a net loss of CNY180 million to CNY240 million (USD25.1 million to USD33.4 million) in the six months ended June 30, compared with a CNY220 million profit a year ago, it said yesterday. Due to falling cattle prices, the Ma’anshan-based firm reduced the number of low-yielding cows to bolster the herd's structure, it added.

China Shengmu Organic Milk has predicted a net loss of CNY130 million to CNY150 million, versus a net profit of CNY23 million (USD3.2 million) a year earlier, and AustAsia Group expects its loss to have doubled to between CNY600 million and CNY700 million for the period.

The dairy industry will continue to face a severe adjustment this quarter as demand falls short and despite the increase in domestic raw milk production capacity slowing, Yicai learned.

The average price for raw milk in 10 major production regions, including Inner Mongolia Autonomous Region and Hebei province, was CNY3.22 (45 US cents) per kilogram in the fourth week of July, down 0.3 percent on the prior week and 14.1 percent from a year ago, according to agriculture ministry figures. Prices stood at about CNY3.66 per kg early this year.

Several producer regions have issued low reference prices for bulk purchases of milk for the third quarter. The dairy branch of the Shaanxi Provincial Animal Husbandry Association set a guide price floor of CNY3.05 per kg, while Hebei's is CNY3.25 per kg.

China’s milk glut will be worse this year than last year, Li Shengli, chief scientist at the National Dairy Industry and Technology System, has said. With falling bulk purchase prices, sales prices have dropped below cost for the first time on record, resulting in losses for over 80 percent of producers, he added.

Supply and demand will likely continue to adjust this year, Song Liang, an independent dairy analyst, told Yicai. Milk producers remain under pressure, and whether the market can return to balance depends largely on the industry's capacity reduction efforts, Song pointed out.

Editor: Martin Kadiev