A research report indicates that the average price of fresh milk in major production areas maintained a low level of 3.02 yuan/kg in August. Considering the current market supply-demand dynamics, industry development trends, and seasonal factors, the possibility of further price declines is relatively low. The current price level of 3.02 yuan/kg is highly likely to become the bottom price in this cycle of fresh milk prices, with subsequent prices expected to gradually enter a stabilization and recovery channel.
Downstream dairy products have been generally weak this year, with cumulative year-on-year production declining 1% from January to July, and August is expected to remain stable. However, cheese consumption has shown good growth momentum, with cumulative cheese imports increasing 12% year-on-year from January to July. The main driver of consumption growth has been the increased penetration of cheese in the food service sector.
**Upstream Raw Milk Prices Expected to Bottom Out**
The average price of fresh milk in major production areas maintained a low level of 3.02 yuan/kg in August. Based on current market supply-demand dynamics, industry development trends, and seasonal factors, the possibility of further price declines is relatively low. The current price level of 3.02 yuan/kg is highly likely to become the bottom price in this cycle, with subsequent prices expected to gradually stabilize and recover.
The reasons are as follows: First, from the supply side, current milk prices have caused most domestic dairy farms to face cash flow losses. The industry's capacity reduction trend will continue unchanged, and the pace of capacity reduction is expected to accelerate further. As the silage procurement season in September-October approaches, farms will face new concentrated funding pressure. Silage, being an important roughage source for cattle in winter, typically requires large procurement volumes and one-time payment of high procurement costs. This undoubtedly adds pressure to farms already experiencing tight cash flows. Under these circumstances, farms with weaker financial strength and lower risk resistance may choose to further cull low-producing cows, reduce breeding scale, or even exit the market, directly accelerating the industry's capacity reduction process. The gradual supply-side contraction will provide important support for subsequent stabilization of fresh milk prices.
Second, from the demand side, the peak consumption season for downstream dairy products is gradually approaching, and market demand for raw milk will show seasonal growth, which is expected to drive seasonal increases in raw milk prices.
**Overall Weak Downstream Demand, but Cheese Consumption Shows Good Growth**
Downstream dairy products have been generally weak this year, with cumulative production declining 1% year-on-year from January to July, and August is expected to remain stable. In the liquid milk sector, consumption structure differences are particularly prominent. Room-temperature milk, as an important component of the liquid milk market, has shown obvious weak consumption trends recently. Affected by multiple factors including changes in consumer habits and intensified market competition, demand growth for room-temperature milk has been lackluster, with some regional markets even experiencing demand declines, weakening its contribution to overall liquid milk consumption.
In contrast, low-temperature milk and yogurt, leveraging advantages in freshness and nutritional value, have shown certain growth momentum, becoming bright spots in the liquid milk market. However, from a market share perspective, the consumption proportion of low-temperature milk and yogurt is relatively limited and has not yet formed sufficient scale to reverse the overall liquid milk market pattern. Overall, domestic liquid milk consumption has reached a stage bottleneck, with overall market scale growth stagnating and difficulty achieving breakthrough growth in the short term, as the industry enters a stock competition phase.
Cheese consumption has shown good growth momentum, with cumulative cheese imports increasing 12% year-on-year from January to July. The increased penetration of cheese in the food service sector has been the main driver of consumption growth.
**Investment Recommendations**
The report recommends focusing on upstream dairy cycle reversal opportunities, specifically recommending YOURAN DAIRY (09858). For downstream opportunities, it recommends companies in the low-temperature liquid milk sector and cheese market leaders, while noting attention to companies with heavy overseas debt burdens that would benefit from Federal Reserve rate cuts, specifically H&H INTL HLDG (01112).
**Risk Warnings**
Risks include continued weak downstream demand and intensified market competition.