According to a research report released by Central China, and based on monitoring data from the Ministry of Agriculture, the number of dairy cows in 2024 is expected to decrease by 4.5% year-on-year, while raw milk production is predicted to decline by 2.8%. Estimating based on the situation in 2023, the number of dairy cows in 2024 will be 6.3 million heads, with raw milk production reaching 41.6113 million tons. In 2024, both the inventory of dairy cows and raw milk production will decline, creating conditions for stabilizing raw milk prices. Since 2024, the supply-demand balance in the raw milk market has improved, and raw milk prices are expected to stabilize within the year. A balanced supply and demand upstream will benefit the overall development of the industry, and valuations in the dairy product industry in the secondary market are also expected to recover. It is recommended to focus on the dairy product industry, especially upstream raw milk supply companies.

The main viewpoints of Central China are as follows:

Since 2018, the number of domestic dairy cows has risen sharply.

According to data from the China Dairy Industry Yearbook, by 2022, the number of domestic dairy cows reached 11.608 million heads, an increase of 1.231 million heads compared to 2018, setting a record high since 2008. Several reasons contributed to the significant increase in the dairy cow population: the improvement of farming scale; the enhancement of mechanization and intelligence in farms; and advancements in breeding technology, leading to increased milk production per cow. In short, the improvement in breeding technology is a crucial factor for the increase in the dairy cow population.

The rise in the number of dairy cows has led to a rapid increase in domestic raw milk production.

According to data from the National Bureau of Statistics, domestic raw milk production increased from 31.1891 million tons in 2013 to 42.8132 million tons in 2023, showing a 37.27% increase over ten years. However, after 2022, domestic milk consumption has been relatively weak, with downstream consumption growth not keeping pace with upstream raw material increases, exacerbating the issue of surplus upstream. As disclosed by Li Shengli, Vice President of the China Dairy Association and Professor at China Agricultural University: 'In 2022, domestic liquid milk consumption experienced its first decline in eight years. After the decrease in liquid milk consumption, the surplus of raw milk supply reached 3.4 million tons.'

According to the sales data disclosed by Inner Mongolia Yili Industrial Group (600887.SH): in 2022, the company sold 9.4949 million tons of liquid milk, a decline of 1.23% compared to 2021; in 2023, there was only a slight increase of 0.85% compared to 2021, indicating weak growth in sales. According to the China Dairy Industry Yearbook, the number of imported liquid milk in China decreased by 24.6% year-on-year in 2022 to 0.9772 million tons, reflecting changes in milk consumption that occurred in 2022 from another perspective.

Due to oversupply, domestic raw milk prices have continuously declined, leading to a decrease in profits and even losses for the upstream animal husbandry sector.

As of February 21, 2025, the average price of raw milk in major domestic producing areas has fallen to 3.1 yuan/kg, a drop of 29.22% from the peak in August 2021, with the decline lasting over three years. Due to the prolonged decline in raw milk prices, the performance of livestock farming enterprises in the upstream of the Industry Chain has declined and even incurred losses. In 2023 and the first three quarters of 2024, Lanzhou Zhuangyuan Pasture (002910.SZ) experienced a year-on-year decline in net income of 233.68% and 581.62%, while Xinjiang Western Animal Husbandry (300106.SZ) saw a net income decline of 171.58% and 2029.64%.

The interests of dairy companies are closely related to those of the upstream animal husbandry sector, as an increase in raw milk prices would benefit the entire Industry Chain. During the oversupply of raw milk, mid-stream Dairy Product processing enterprises often store raw milk in the form of spray powder. According to Li Shengli, Vice President of the China Dairy Association and Professor at China Agricultural University, in 2023, the inventory spray powder volume of dairy companies reached 23 to 0.3 million tons. The continuous decline in raw milk prices will cause the inventory of dairy companies to continue to devalue. Additionally, if dairy companies have shareholdings in upstream sectors, their investment income will decrease accordingly. Therefore, achieving a balance in supply and demand in the upstream and a rebound in raw milk prices will benefit the entire Industry Chain, aiding the healthy development of upstream and downstream enterprises and achieving a win-win situation.

Risk Warning

Weak growth in downstream Dairy Product demand; risks of animal diseases.