A research report indicates that raw milk prices continue to decline, with inventory expected to accelerate destocking in H2 2025 under funding pressure; beef and live cattle prices are reversing from low levels, likely benefiting from supply reduction and weakening import impact. Under the resonance of meat and dairy cycles, dairy companies show strong profit elasticity. The report recommends overweight positions on leading dairy companies YOURAN DAIRY (09858) and CH MODERN D (01117), while suggesting attention to CHINA SHENGMU (01432) and AUSTASIA GROUP (02425).

**Raw Milk Prices Continue Declining, H2 2025 Expected to Achieve Supply-Demand Balance**

During the August-September silage procurement season, farms face significant funding pressure for procurement and storage, with social inventory expected to accelerate destocking. H2 2025 is expected to benefit from supply-side production reduction due to heat stress and the effect of previous heifer destocking becoming apparent. Under demand peak season, the industry is expected to enter a supply-demand balance channel.

The analysis suggests that benefiting from the fading impact of previous concentrated expansion, reduced milking cow restocking, and demand recovery, milk price uptrend in 2026 shows strong certainty.

**Policy Implementation Further Boosts Dairy Demand**

The fertility subsidy policy was officially implemented in July 2025, which is expected to boost dairy product consumption demand. The new national standard for sterilized milk will be implemented in September, where UHT milk can no longer use reconstituted milk as raw material. The impact of imported milk powder will further weaken, and domestic raw milk demand is expected to strengthen.

**Beef Cattle Prices Reverse from Low Levels, Entering Upward Cycle in 2025**

Beef prices have experienced three cycles in recent years: 1) 2010-17: Rising per capita disposable income drove demand growth for premium beef, with prices rising rapidly under supply shortage; 2) 2018-22: Under African swine fever impact, pork and poultry prices soared, driving beef prices up rapidly with demand growth; 3) 2023-present: Beef prices continued declining in 2023, mainly affected by supply-side imported low-price beef squeezing demand and capacity release from inventory growth during the upward period, as well as low prices of substitute pork and poultry.

Cattle prices entered an upward cycle in 2025, benefiting from supply destocking and weakening import impact. Under farm losses, supply-side breeding cow inventory continues destocking. With excessive slaughter, the supply gap is expected to further expand. Industry loss coverage continues to increase in recent years, with newborn calves declining over 8% year-over-year in January-November 2024. National cattle inventory in Q2 2025 decreased 2.1% year-over-year to 99.92 million head.

Affected by reduced imported beef volume (H1 2025 -9.5% year-over-year), beef/live cattle prices have reversed from low levels since 2025, rising approximately 10%/20% from previous lows. Under supply destocking, cattle prices are expected to further increase.

China's imported beef measure investigation will conclude in November. The analysis suggests that future import restriction policies, if implemented, may further boost domestic beef demand.

**Meat-Dairy Cycle Resonance Shows Strong Profit Elasticity**

Under meat-dairy cycle resonance, dairy companies show strong profit elasticity: 1) Gross margin: Benefiting from milk price reversal and unit cost contraction. Assuming milk selling prices increase 10%/20% year-over-year, leading dairy farming companies' gross margins are expected to improve by over 6pct/10pct. With cost control and operational efficiency improvement, per-kilogram milk costs are expected to further decline; 2) Biological asset impairment: Mature cow valuation and culled cow income are expected to strengthen. With cattle price growth of 20%/40%, leading dairy companies' total culled cow income is expected to increase by approximately 200/400 million yuan; AUSTASIA GROUP and CHINA SHENGMU operate beef cattle business and are expected to directly benefit from live cattle price recovery. Additionally, mature cow fair value is expected to benefit from milk price reversal, feeding cost decline, and herd structure optimization.

**Risk Warnings:** Inventory destocking and price reversal falling short of expectations, feed cost volatility, food safety issues.