Dairy farming stocks moved higher during Tuesday morning trading, with CH MODERN D (01117) climbing 6.69% to HK$1.515 and YOURAN DAIRY (09858) advancing 5.45% to HK$4.16.

Market sentiment has been bolstered by a series of bullish indicators emerging from the raw milk sector. Since May, bulk milk prices have been pushed upward by factors including foot-and-mouth disease outbreaks and heat stress, with these spot prices now exceeding contracted farm-gate rates. On July 24, the average price of fresh raw milk in China's major production regions reached 3.06 yuan per kilogram, marking a year-on-year turnaround to positive territory.

Industry insiders note that contracted milk prices serve as a lagging indicator of downstream dairy processors' assessment of raw milk supply and demand dynamics. The shift to positive year-on-year growth in these contract prices suggests that processors are beginning to recognize tightening supply conditions, providing a clear signal that the market may have found its bottom.

Adding to the positive outlook, both CH MODERN D and YOURAN DAIRY have released pre-announcements indicating improved operational performance for the first half of this year, with both companies returning to profitability.

Analysts at China Securities Co., Ltd. highlight that the recent inversion of spot milk prices above contract prices, combined with daily spray-dried fresh milk volumes falling to their lowest level in two years and a modest recovery in production area milk prices, points to a clear reversal signal in the raw milk cycle. As upstream supply continues to be reduced, raw milk production is expected to gradually tighten, while downstream deep-processing capacity expansion is set to boost demand. The brokerage forecasts a gentle upward trend in raw milk prices and recommends YOURAN DAIRY, citing the potential for leading dairy farming groups to deliver strong earnings leverage.

During periods of rising milk prices, midstream dairy companies are expected to see enhanced competitiveness in liquid milk products, while upstream players benefit from reduced impairment charges and increased investment income, all contributing to improved overall performance.