Raw milk prices, after experiencing a 4-year downward cycle, have recently achieved phase stability. National main production area raw milk average prices gradually increased from 3.02 yuan/kg in August to 3.04 yuan/kg by the end of September, while Ningxia loose milk prices rose from 2.1-2.2 yuan/kg to 3.5-3.7 yuan/kg. This improvement stems from two factors: demand driven by Mid-Autumn Festival and National Day gift-giving needs, and natural supply reduction during the July-September "heat stress" period for dairy cows.

This round of milk prices has entered the tail end of the downward cycle. With accelerated inventory reduction, a turning point is expected, though under the backdrop of increasing proportion of large-scale farms, milk price volatility will be significantly dampened. For dairy farming companies, narrowing milk price declines and reduced losses from cattle culling will bring profit recovery to financial statements.

**Short-term Milk Price Recovery, Long-term Turning Point Expected**

During the current Mid-Autumn Festival and National Day period, dairy product demand has reached a minor peak. With gradual supply-side clearing, raw milk prices have achieved phase stability, and beef cattle prices have begun recovering. Subsequent milk price stability and reduced cattle culling losses will significantly catalyze opportunities in the dairy farming sector. Raw milk supply-demand balance is also expected to moderate competition among dairy companies, driving opportunities in dairy products.

**Raw Milk Cycle Nearing End, Inventory Reduction Expected to Accelerate in 2025H2**

Reviewing this round of raw milk cycle, the industry experienced a 4-year downward phase. From the demand perspective, dairy product consumption continued declining, creating a different demand backdrop from previous raw milk cycles. Current demand-side opportunities are more focused on B2B and deep-processing areas like cheese.

From the supply dimension, during the previous milk price peak phase, the dairy industry intensified upstream milk source construction, leading to concentrated supply release and oversupply. According to analysis by Professor Liu Changquan, Secretary-General of China's Forestry, Animal Husbandry and Fishery Economics Association, over 80% of dairy farms were loss-making in 2024H1, with the loss ratio exceeding 90% in 2025H1. The dairy farming industry is gradually clearing out, but the high proportion of large-scale farms has slowed the reduction pace.

According to the Ministry of Agriculture and Rural Affairs, in 2024, farms with over 100 head accounted for 78% of total farms, up 2 percentage points year-on-year, with this proportion expected to increase further. As of July 2025, dairy cow inventory stood at 5.983 million head, down 507,000 head from the February 2024 peak. After the Mid-Autumn Festival, cattle inventory is expected to reduce further, with marginal catalysts including: 1) Mid-Autumn and National Day gift season temporarily boosting demand, with post-holiday demand returning to daily sales and entering destocking phase; 2) After three years of losses, small and medium dairy companies face significant cash flow pressure, with September-October silage storage adding further cash flow pressure; 3) Current beef cattle price increases and reduced cattle culling losses may enhance farms' willingness to cull cattle.

**Beef Cattle Entering Upward Cycle**

As of September 25, China's average beef price reached 71.1 yuan/kg, up 9.4% from the February low. Beef cattle prices in provinces like Shaanxi, Shandong, and Henan all entered upward channels after the Spring Festival. The boost in beef cattle prices stems from two factors: during the 2021-2024 beef price downward phase, the industry experienced inventory reduction, and with beef cattle farming dominated by small-scale farmers, industry reduction was substantial. As of end-June 2025, cattle inventory was 99.92 million head, down 5.17 million from the 2023 peak.

Additionally, China has high dependence on imported beef, with imported beef accounting for approximately 31% of supply in 2024H1. In late 2024, the Ministry of Commerce initiated safeguard measure investigations on imported beef. In 2025H1, beef imports totaled 1.3 million tons, down 9.5% year-on-year, ending an 8-year growth trend. In August 2025, the Ministry of Commerce decided to extend the investigation period to November 26, 2025, with import volume reduction further expanding the domestic beef supply-demand gap.

**Milk Prices Expected to Exit Downward Cycle, Driving Dairy Farming and Dairy Industry Opportunities**

This round of milk prices has entered the tail end of the downward cycle. With accelerated inventory reduction, a turning point is expected, though under the backdrop of increasing proportion of large-scale farms, milk price volatility will be significantly dampened. For dairy farming companies, narrowing milk price declines and reduced cattle culling losses will bring profit recovery to financial statements.

Currently, YOURAN DAIRY (09858) trades at 1.0x PB, CH MODERN D (01117) at 1.1x PB, and CHINA SHENGMU (01432) at 0.7x PB, with raw milk and beef cattle cycles resonating significantly as catalysts.

For dairy companies, improved industry supply-demand dynamics will reduce raw milk digestion pressure, narrow terminal promotions, and reduce cattle impairment pressure. However, under rising cost backdrop, long-term profitability improvement may come from demand-side deep-processing product development and structural upgrades.

Yili has successfully demonstrated revenue improvement, and the subsequent raw milk cycle turning point will bring the dairy industry into a new development phase, currently trading at 15x PE with 4.5% dividend yield, showing significant allocation value. New Hope Dairy focuses on fresh strategy as its core, continuously achieving excellent performance in market expansion, channel coverage, and new product launches, driving significant net profit margin improvement with prominent growth characteristics. Tianrun Dairy achieved successful profit bottom improvement in 2025Q2 after actively reducing excess cattle inventory, with subsequent industry supply-demand improvement expected to narrow the company's dairy farming losses and realize profit improvement.

**Risk Warnings** Industry inventory reduction falling short of expectations, continued weakness in dairy product demand, delayed milk price turning point.