Core Viewpoint - The raw milk price has entered a phase of stabilization after a four-year decline, with prices expected to recover due to seasonal demand and supply adjustments [1][2][5] Group 1: Raw Milk Price Trends - The average raw milk price in major production areas increased from 3.02 CNY/kg in August to 3.04 CNY/kg by the end of September, while the price of raw milk in Ningxia rose from 2.1-2.2 CNY/kg to 3.5-3.7 CNY/kg [1][2] - The stabilization of raw milk prices is attributed to increased demand during the Mid-Autumn Festival and National Day, as well as a natural decline in supply due to "heat stress" on dairy cows from July to September [1][2] Group 2: Industry Dynamics - The dairy industry has experienced a four-year downtrend, with a significant decline in dairy product consumption, leading to a different demand landscape compared to previous cycles [2] - The proportion of large-scale farms is increasing, with expectations that by 2024, 78% of farms will have over 100 heads of cattle, which may slow down the pace of supply reduction [2][5] Group 3: Beef Market Insights - The average beef price in China rose to 71.1 CNY/kg as of September 25, reflecting a 9.4% increase from the February low, driven by a reduction in cattle inventory and import restrictions [4] - The beef market is expected to experience a prolonged price upcycle due to the lengthy breeding and fattening cycle of cattle, with a forecasted decline in the number of breeding cows [4] Group 4: Opportunities for Dairy Companies - The narrowing decline in milk prices and reduced losses from culling cattle are expected to improve profit margins for dairy companies [5] - Companies like Yili (伊利股份) and New Dairy (新乳业) are showing signs of revenue improvement, with Yili achieving a 15x PE ratio and a 4.5% dividend yield, indicating significant investment value [6]

Summary of the Conference Call on the Beef Cattle Industry Industry Overview - The beef cattle industry is experiencing significant capacity reduction due to deep losses in 2024, leading to the culling of young and pregnant cows. The trend of capacity reduction is expected to continue into 2025, albeit at a slower pace. The southern regions have seen an 8% decline in cow inventory, with some areas experiencing reductions of up to 30% [1][2][3] - The supply of calves has noticeably decreased, with calf prices doubling at the beginning of 2025, indicating a future tightening of beef supply [1][2] Key Supporting Factors for the Beef Cattle Cycle 1. **Capacity Reduction**: The domestic beef cattle farming industry has faced supply shocks, leading to the culling of inefficient cows and the introduction of new breeding stock. The trend of culling continues into 2025, with calf supply significantly reduced [2][3] 2. **Global Price Transmission**: Major beef-producing countries like the US, Brazil, and Australia have also undergone capacity reductions. The CME live cattle futures price has doubled since 2020, and this global price increase is transmitted to the domestic market, supporting domestic beef prices [2][3] 3. **Policy Support**: The Chinese government is implementing measures to protect domestic farming, including an investigation into import safeguards that has affected import volumes, allowing the domestic market time to adjust [3] Market Conditions for 2025 and Beyond - In 2025, there will be a shortage of calves but an adequate supply of fattened cattle and finished meat. The impact of previous capacity reductions has not fully materialized, leading to a continued influx of cow meat into the market [4] - The price uptrend is expected to officially begin in 2026, with prices anticipated to rise significantly due to the effects of the severe capacity reduction in 2024, continuing through 2027 and possibly into 2028 [4] Characteristics of the Beef Cattle Industry Chain - The beef cattle industry chain includes upstream feed, midstream fattening and slaughter, and downstream consumption. Feed costs account for 50%-70% of farming costs, with a long growth cycle and low breeding efficiency [5] - The industry is characterized by low concentration, with the top 50 companies holding a small share of total inventory [5] Global and Domestic Meat Trade Dynamics - The top ten beef-producing countries account for 87% of global production, with the US being the largest producer at over 12 million tons. China produces around 8 million tons but still imports approximately 2.8 million tons, primarily from South America [6] - China's demand significantly influences global trade structures, with Brazil being the largest supplier, followed by Argentina and Australia [6] Cost Disparities in Beef Cattle Farming - Domestic beef cattle farming costs are significantly higher than in Brazil due to factors such as scarce pasture resources and high feed and labor costs. Domestic costs range from 10,000 to 20,000 yuan, while Brazilian costs are between 5,000 to 8,000 yuan [8] - The low level of industrialization and efficiency in domestic beef production contributes to these high costs [7][8] Historical Price Trends - Since 2000, domestic beef prices have generally trended upward, with a notable decline in 2023 due to increased supply and reduced consumption growth. This marked the first historical price drop, with inventory levels declining for two consecutive years [9] Current and Future Supply-Demand Situation - Domestic per capita beef consumption remains low compared to countries like Japan and South Korea, indicating significant growth potential. The consumption of high-quality beef is growing faster than that of regular beef, with premium varieties seeing growth rates of up to 30% [10] Investment Opportunities - The current phase represents a critical price turning point in the Chinese beef cattle market. Companies such as YouRan MuYe, China Shengmu, and Modern Farming are recommended for investment due to their ability to generate cash flow through the culling of dairy cows and their growth potential in the beef market [11][12]

Summary of the Conference Call on the Dairy Industry Industry Overview - The dairy sector is experiencing a rebound due to a decrease in feed costs, with companies like YouRan, New South Wood, and Gongji Dairy reporting a 10% year-on-year decline in sales costs, which has helped offset the impact of falling prices per ton. The gross profit margin for raw milk has increased by nearly 2 percentage points [1][4]. Key Points and Arguments - **YouRan Dairy Performance**: In the first half of 2025, YouRan's raw milk revenue grew approximately 8% to 8 billion yuan, driven by increased sales volume and the launch of three new farms. Sales costs decreased by 10%, and feed costs fell by 12%, leading to a gross margin increase of 2.4 percentage points. The reduction of heifer stock and an increase in the proportion of breeding cows also contributed to profit growth [1][5]. - **Modern Dairy Performance**: Modern Dairy has reduced its stock by about 20,000 heads to 18,700 heads by eliminating inefficient cows. Raw milk revenue remained stable at around 5 billion yuan, but the average selling price fell by 10% year-on-year. The solutions business revenue dropped by 23%. Despite a 23% increase in operating cash flow, net profit attributable to shareholders decreased due to biological asset losses [1][6][7]. - **Milk Price Trends**: In early September, milk prices slightly rebounded, ending a downward trend since April, indicating that demand is not as weak as expected. If milk prices stabilize in the fourth quarter, demand may stabilize next year. However, a significant reduction in breeding cow stock is anticipated due to mass culling, which may lead to a supply gap [1][8][10]. - **Supply and Demand Dynamics**: The dairy sector's stock structure has improved, with the proportion of breeding cows increasing by 2.3 percentage points to 53%. Major dairy companies have accelerated stock reduction, with Modern Dairy's heifer stock decreasing by over 20,000 heads [2][9]. - **Impact of Feed Prices**: The price of silage is expected to remain stable or slightly increase, which will affect overall milk prices. Unlike last year, silage prices have not further declined, which may impact the profitability of dairy farmers [12]. - **Meat Cycle Influence**: The meat cycle plays a crucial role, with companies like YouRan and Modern Dairy culling about 30% of their breeding cows annually. The income from culling has nearly doubled in the first half of 2025. The domestic beef supply gap is expected to continue until 2027 due to various market pressures [13]. - **International Market and Policy Changes**: The international market is seeing a decline in production from major exporters like Brazil and New Zealand due to drought and rising costs. Domestic policies are also tightening import regulations, which will increase transportation costs and affect the supply chain [14]. - **Profitability Outlook**: The reversal in milk prices and reduction in unit costs are expected to significantly enhance the profitability of dairy companies. If raw milk prices rebound and unit costs remain stable, leading companies could see gross margins improve by up to 10 percentage points [15]. Additional Important Insights - **Future Trends in Dairy Industry**: The current rebound in milk prices suggests better-than-expected demand. The supply side is also expected to perform well, with significant culling and replenishment of breeding cows. Valuation metrics indicate strong potential for profitability and growth in the dairy sector, with historical price-to-book ratios suggesting room for upward movement [16].