Core Viewpoint - The dairy industry has been in a downward cycle for over three years, with intensified competition and low consumer enthusiasm, raising questions about when this trend will end. However, there are signs of price stabilization and recovery in milk prices as of September, particularly in certain regions where raw milk prices have seen significant increases [1][2]. Price Trends - Since the second half of 2022, domestic fresh milk prices have been on a downward trend, with average prices dropping from a peak of 4.38 yuan per kilogram in August 2021 to nearly 3 yuan, representing a decline of over 30% [2]. - As of September 2025, the average price of fresh milk in major producing provinces has stabilized at 3.03 yuan per kilogram, maintaining this level for three consecutive weeks, indicating a potential recovery [2][3]. Supply and Demand Dynamics - The supply-demand relationship in the fresh milk market is gradually balancing due to factors such as reduced dairy cow production capacity and increased consumption of cold drinks. This has led to a stabilization in the purchase price of fresh milk [3][4]. - Some industry participants attribute the recent price stabilization to the upcoming Mid-Autumn Festival and National Day, which has prompted dairy companies to stock up in advance [4]. Industry Adjustments - The dairy industry is undergoing significant adjustments, with a decrease in the number of dairy cows and a reduction in fresh milk production. As of 2024, the national dairy cow inventory was 6.3 million, down 4.5% year-on-year, and fresh milk production was 40.79 million tons, down 2.8% [4][5]. - The number of large-scale dairy farms has decreased from 4,600 in 2022 to 3,600 in 2024, indicating a deep adjustment period within the industry [4]. Future Outlook - Analysts suggest that the overall cost of dairy farming remains above the price of fresh milk, putting pressure on dairy farming enterprises. This has led to larger farms slowing down capacity expansion while smaller farms accelerate their exit from the market [5][6]. - With the implementation of favorable policies such as childbirth subsidies and the promotion of student milk programs, there is an expectation of marginal recovery in dairy product demand, which may improve the supply-demand balance in the raw milk market [6].

Core Insights - The Chinese dairy industry is currently facing a supply-demand imbalance, leading to a need for capacity reduction as a key strategy for alleviating industry distress [2][4][10] - The bottom of the current milk price cycle has been established, with a potential reversal expected within a year, making the second half of this year or the first half of next year critical [10] Industry Overview - From 2018 to 2022, the dairy industry saw an increase of over 1 million dairy cows, resulting in excessive production capacity amid declining consumption [2][4] - The dairy farming sector is projected to incur cumulative income losses of 70 billion yuan from 2023 to 2025, with losses from fresh milk powder reaching 20 billion yuan [2] Production Trends - The total production of raw milk in China is expected to decline by 2.8% in 2024, marking the first decrease since 2018 [3] - The number of dairy cows in the top 10 producing provinces is estimated to decrease by 6.7% by the end of 2024, with around 12 million dairy cows expected to be eliminated from the industry [3][4] Market Dynamics - Despite the acceleration of capacity reduction and favorable conditions such as rising international milk prices and falling feed costs, the domestic raw milk supply remains ample due to slowing downstream demand [4] - The average price of fresh milk in major producing provinces was 3.04 yuan/kg as of early July 2025, reflecting a year-on-year decline of 6.5% [4] Strategic Recommendations - Industry leaders are advised to control the overall increase in dairy cow numbers to no more than 500,000 during the 14th Five-Year Plan period, with an annual increase capped at 100,000 [5] - Major dairy companies should enhance their self-sourced milk supply through mergers, equity stakes, and long-term management of social farms to stabilize foundational production capacity [4][5] Consumer Trends - There is a shift in consumer preferences towards high-quality, nutritious dairy products, with a notable increase in demand for B-end (commercial) dairy products, which currently sees 70%-80% of its market share dominated by imported brands [7] - The industry is responding to the evolving nutritional needs of various demographic groups by developing tailored products for different age segments [7][8] Future Outlook - The dairy industry is expected to see a significant adjustment in production capacity, with a projected decline exceeding 5% in the fourth quarter of 2024 and the first quarter of 2025 [9] - The market is anticipated to reach a supply-demand balance by the third quarter of 2025, driven by the exit of smaller farms and consumption stimulus policies [9][10]

Core Viewpoint - The dairy farming industry in China is facing significant challenges, with cumulative income losses projected to reach 70 billion yuan from 2023 to 2025, and losses from fresh milk powder estimated at 20 billion yuan. The current reliance on government support and project subsidies is insufficient to fundamentally resolve these issues, and capacity reduction is deemed the most effective way to achieve supply-demand balance and stabilize milk prices [2][6]. Industry Challenges - The dairy industry is experiencing a phase of supply-demand imbalance, with consumer demand showing signs of weakness. In 2024, the national dairy product output is expected to reach 29.618 million tons, indicating relative stability in overall production [2][6]. - The bottom of the current cycle has been identified, with a reversal expected in approximately one year [4][5]. Recommendations for Recovery - Continuous implementation of industry relief policies for 1-2 years is necessary, focusing on leading dairy enterprises to manage capacity reduction effectively. This includes adjusting the breeding structure and increasing the proportion of mature cows to 55%-60% over the next year [6][9]. - Leading dairy companies are encouraged to stabilize basic production capacity through mergers, equity participation, and long-term management of social pastures over the next three years [6][9]. Growth Potential - Economic growth is expected to drive an increase in milk consumption, with an estimated annual consumption increment of 1 million tons, despite a decline in population [8]. - The national dairy cow stock is projected to be controlled at an overall increase of no more than 500,000 heads during the 14th Five-Year Plan, with an average annual increase of 100,000 heads [8]. Strategic Upgrades - Establishing a strategic regulation mechanism for the dairy farming industry is recommended, drawing on successful management experiences from developed dairy countries [11][12]. - A legal and effective fresh milk pricing mechanism should be developed to reflect supply-demand dynamics, production costs, and consumer conditions [11][12]. - Promoting the integration of dairy farming and feed production, enhancing land support policies, and ensuring each dairy cow has a land allocation of 2 acres are also suggested [11][12].