Recently, many regions have introduced guidelines for fertility subsidies, and some dairy companies have voluntarily proposed fertility subsidy plans, which are expected to promote the recovery of milk powder and liquid milk categories, and accelerate the process of narrowing the supply-demand gap in the Industry of raw milk.
According to Zhitong Finance APP, Guotai Junan reported in a research report that recent childbirth subsidy policies have been introduced in multiple regions, with some dairy companies voluntarily proposing childbirth subsidy plans. This is expected to promote the recovery of categories like powdered milk and liquid milk, accelerating the process of narrowing the supply-demand gap in the raw milk industry. Considering the dairy product industry is at a triple bottom in terms of supply, demand, and inventory, the reduction of stock is an important driving force for narrowing the supply-demand gap in this cycle. With the catalyst of domestic demand and childbirth-related policies, the prosperity is expected to improve more quickly and accelerate this process. Key companies to watch include: Inner Mongolia Yili Industrial Group (600887.SH), MENGNIU DAIRY (02319), New Hope Dairy (002946.SZ), Xinjiang Tianrun Dairy (600419.SH), and Youran Ranch (09858), with beneficiaries being: CHINA FEIHE (06186) and CH MODERN D (01117).
The main points of Guotai Junan are as follows:
Recent Enhancements in Childbirth Policies.
Since March, multiple regions, including Hohhot, Guangzhou (some Communities), Jiangxi, and Macau, have introduced detailed childbirth subsidy policies, with annual subsidy amounts often exceeding ten thousand yuan. Companies like CHINA FEIHE, Inner Mongolia Yili, and Junlebao have also voluntarily proposed childbirth subsidy plans, totaling 4.4 billion yuan. In the current export situation, the importance of domestic demand is increasing, with childbirth and consumption being key levers for promoting domestic demand. On April 15, Qiushi magazine emphasized in "Opening New Horizons for Chinese Consumption" that "efforts to enhance childbirth and childcare assurance must be increased." With the recovery of the consumer market and the continued implementation of childbirth policies, the prosperity of categories like powdered milk and liquid milk is expected to accelerate the recovery.
The dairy product industry continues to reduce production capacity.
By the end of 2024, the number of dairy cattle in China is expected to be around 6.2 million heads, with a continuous reduction in dairy cattle stock in Q1 2025. By the end of March, the expected inventory will fall to around 6.1+ million heads, while the current supply of raw milk remains excessive, reflected in the continued decline in milk prices. Recently, due to international trade impacts, prices of Soybean Meal, Corn, and beef have slightly increased, leading to rising fodder costs and increased prices for culling cattle on farms, signaling that the industry is likely to continue its pace of reducing production capacity. Additionally, the import scale of bulk milk powder in January-February has decreased year-on-year, and domestic production and imported raw milk volumes are expected to continue to decline.
The darkest moments have passed, looking forward to a turnaround.
Since the second half of 2023, the demand for dairy products has continuously weakened, and the most pessimistic point in the industry (24Q2) has passed. It is estimated that if the dairy cow stock is reduced to 6 million heads or below by the end of 2025, considering the low base, demand is likely to stabilize and may be stronger, aiming for a balance between raw milk supply and demand within the year.
Combining the rhythms of supply and demand (the supply side will face a concentrated test of farm cash flow from August to September due to forage collection, while the demand side will benefit from the implementation of fertility policies along with the demand release during the Mid-Autumn Festival and National Day in September and October), it is expected that the equilibrium point for fresh milk may appear in 25Q3, at which time the milk price is likely to stabilize and promote improvements in the industry pattern; if fertility and domestic demand policies are more actively implemented, the balance of supply and demand may be achieved earlier. Historical experience shows that leading companies typically perform better during periods of rising milk prices by improving gross sales margins while reducing certain expenditures and losses, leading to profit recovery and market share gains.
Risk Warning
The decrease in dairy cow inventory not meeting expectations has led to a continuous drop in milk prices, ongoing decline in dairy product sales, and risks related to food safety.
