A research report indicates that during the August-September silage procurement season, dairy farms face significant funding pressure for storage, and social livestock inventory is expected to accelerate destocking. The second half of 2025 is expected to benefit from reduced production due to heat stress on the supply side and the effects of previous replacement cattle destocking, with the industry likely entering a supply-demand balance channel during peak demand season.

Affected by reduced imported beef volumes (down 9.5% year-on-year in H1 2025), beef and live cattle prices have reversed from lows since 2025, rising approximately 10%/20% from previous lows. Cattle prices are expected to grow further under supply destocking. Dairy companies demonstrate strong profit elasticity under resonating meat and milk cycles.

The report recommends increasing holdings in leading dairy companies YOURAN DAIRY (09858) and CH MODERN D (01117), while paying attention to CHINA SHENGMU (01432) and AUSTASIA GROUP (02425).

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

During the August-September silage procurement season, dairy farms face significant funding pressure for storage, and social livestock inventory is expected to accelerate destocking. The second half of 2025 is expected to benefit from reduced production due to heat stress on the supply side and the effects of previous replacement cattle destocking, with the industry likely entering a supply-demand balance channel during peak demand season.

Benefiting from the diminishing impact of previous concentrated expansion, reduced lactating cow restocking, and warming demand, milk price increases in 2026 show strong certainty.

Policy implementation further boosts dairy demand. The fertility subsidy policy officially launched in July 2025 is expected to boost dairy product consumption demand. The new national standard for sterilized milk will be implemented in September, prohibiting UHT milk from using reconstituted milk as raw material, further weakening the impact of imported bulk powder and potentially boosting domestic raw milk demand.

**Cattle Prices Reverse from Lows, 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 shortages; 2) 2018-22: Under African swine fever impact, pork and poultry prices soared, driving beef prices up rapidly with increased demand; 3) 2023 to present: Beef prices continued declining in 2023, mainly affected by supply-side pressure from imported low-priced beef squeezing demand and capacity release from inventory growth during the upward period, plus 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, breeding cow inventory continues destocking on the supply side, with supply gaps expected to expand further under excessive slaughter. Industry losses have continued to increase in recent years, with newborn calves down over 8% year-on-year in January-November 2024. National cattle inventory in Q2 2025 fell 2.1% year-on-year to 99.92 million head.

Affected by reduced imported beef volumes (down 9.5% year-on-year in H1 2025), beef and live cattle prices have reversed from lows since 2025, rising approximately 10%/20% from previous lows. Cattle prices are expected to grow further under supply destocking. China's anti-dumping investigation on imported beef will conclude in November, and future import restriction policies may further boost domestic beef demand.

**Resonating Meat and Milk Cycles Provide Strong Profit Elasticity**

Under resonating meat and milk cycles, dairy companies demonstrate strong profit elasticity: 1) Gross margin side: Benefiting from milk price reversal and unit cost contraction. Assuming milk sales prices increase 10%/20% year-on-year, leading dairy farming companies' gross margins could improve by over 6pct/10pct. With cost control and operational efficiency improvements, per-kilogram milk costs are expected to decline further; 2) Biological asset impairment: Mature cow valuations and culled cow income are expected to improve. With cattle prices rising 20%/40%, leading dairy companies' total culled cow income could increase by approximately 200/400 million yuan. AUSTASIA GROUP and CHINA SHENGMU operate beef cattle businesses and are expected to directly benefit from live cattle price recovery. Additionally, mature cow fair values are expected to benefit from milk price reversal, reduced feeding costs, and herd structure optimization.

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