April is bullish!, page-31

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Mark06

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28/02/16

18:07

Post #: 17137221
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Originally posted by imback ↑

I am starting to see the potential for A2 whole milk powder (WMP). The margins are excellent and maybe close to IF as it does not require expensive additional nutrients (only needs A2 milk) and the processing would be simpler. The H1 report was quite bullish on A2 WMP sales.

As an example, Coles sell their homebrand 1kg WMP for $5.69. A2 sell their WMP for $12.99+. As a rough guide, it will cost A2MC an additional 10% on the raw ingredients, i.e. A2 milk. In theory, this would be around 26 cents based on current market rates of $2.66 per kg (https://www.globaldairytrade.info/en/product-results/whole-milk-powder/).

If you allow a generous 50% margin for retailer, it means A2MC is selling wholesale for $6.50 and it is costing them $2.92 i.e. 2.66+0.26. Gross profit margin = 55% i.e. (6.50 - 2.92)/6.50. Very healthy. So selling 2 x 1 kg WMP is equivalent to 1 x 900g IF stage 3.

The increase in demand for A2 WMP is great for 3 reasons:

1) It means A2MC can utilise the additional capacity at SML for WMP. I believe all their dryers can do WMP. So not limited to the 30,000MT official IF capacity.

2) WMP has a much larger addressable market in China than even IF. As the middle class aspire to western style diets and food, dairy will take off. The science will soon show that A2 only protein is best for this population.

3) WMP production is not as specialized as IF. So alternate manufacturer's can be more readily found in AU/NZ.

I've noticed, SML have stopped advertising for A2 farmers. I think the program has been successful and they are locked and ready for the 2017 season with very strong A2 supply.

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Whole sale for a2 milk powder to retailers is 9.50

A2M Price at posting: $1.62 Sentiment: Buy Disclosure: Held
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