Core Viewpoint - The report from CITIC Securities indicates that live cattle prices have room for growth, while milk prices remain at historically low levels. The ongoing reduction in dairy cow inventory and the gradual impact of the reduction in beef breeding cows are expected to improve the performance of upstream breeding companies. The outlook for raw milk and beef cycles is positive, suggesting a potential upward trend in prices and profitability for the industry [1]. Summary by Category Raw Milk - After the double festival, supply and demand are relatively stable, with milk prices entering a bottoming phase. The overall supply-demand situation has remained stable since Q3, continuing in an oversupply state, with contract prices remaining flat [2]. - The demand for dairy products is under pressure, with a significant decline in sales since Q3 2025, exceeding double digits. The performance of ambient products is notably weaker than that of chilled products. Domestic brands hold only 4% of the market share in deep processing, indicating substantial room for domestic replacement [2]. Beef Cattle - Live cattle prices are experiencing short-term fluctuations, with a cumulative reduction in inventory exceeding 10% since 2024. Attention is drawn to changes in supply by 2026 [3]. - The prices of live cattle and cull cows have been fluctuating at high levels since Q3 2025, with cull cow prices improving, which will enhance profit margins. However, profits are still significantly below the peak of the previous cycle [3]. Future Outlook - Domestic liquid milk demand remains under pressure, but there is potential for growth in deep processing and export markets. The supply-side reduction in inventory is expected to slow down, with expectations for slight acceleration in inventory reduction during the off-season [4]. - The reduction of breeding cows may exceed 10% since 2024, leading to a shortage in domestic cattle supply, which is a key driver for the current rise in beef prices. The previous cycle saw an 11% decline in inventory, resulting in a price increase of over 60% for fattening cattle. The current increase in live cattle prices is still below 20%, indicating further potential for price growth [4].

Group 1 - The core viewpoint is that the dairy industry in China is currently experiencing a downturn in milk prices, leading to a reduction in upstream breeding capacity and a wait-and-see approach from downstream dairy companies for demand recovery [1][2] - Huatai Securities predicts that the dairy industry is expected to return to supply-demand balance by 2026, driven by a decline in raw milk production and a moderate improvement in terminal demand for dairy products [1] - Data from the China Dairy Association indicates a year-on-year decrease in livestock numbers by 1.0/1.5 million heads in May-June 2025, confirming the trend of capacity reduction [1] Group 2 - Guosen Securities highlights that Youran Dairy, controlled by Yili Group, covers the entire supply chain from breeding, feed, to dairy cow farming [2] - The beef market is entering an upward cycle due to reduced production in major overseas beef-producing regions, with expectations of decreased import volumes and increased prices in the domestic market [2] - The domestic raw milk price has been in decline for nearly four years, leading to pressure for capacity reduction, while the meat-milk price ratio has reached historical highs, which may accelerate the elimination of dairy cows [2]