Cathay Pacific Haitong: Raw milk is expected to reverse the sector's leading performance at 26H2
The Zhitong Finance App learned that Cathay Pacific Haitong released a research report saying that domestic raw milk supply and demand are close to balance and are expected to reverse at 26H2. Considering that milk prices are currently at a historically low level, subsequent supply reduction is expected to drive milk prices to continue to rise. Demand for dairy products is gradually recovering in the short term, and it is expected that structural upgrades will be completed through migration to high value-added products in the long term to achieve continuous and steady development. The raw milk cycle is expected to reach an inflection point in 2026. Milk prices catalyze and rebalance market style, and the performance of leading sector players will improve.
Cathay Pacific Haitong's main views are as follows:
Upstream: The inflection point of the raw milk cycle is progressing
Since 2024, factors such as mismatch between supply and demand and cost inversion have driven domestic dairy cows into the elimination stage. Despite the twists and turns of foot-and-mouth disease in 2026, the overall storage trend will remain declining. Looking ahead to the second half of the year, the heat stress compounded storage period for 26Q3 dairy cows is approaching, and the supply side is expected to continue to shrink. Judging from quarterly data, the raw milk supply and demand structure improved in 2025 but was not completely reversed, while 26Q1-Q2 continued to grow faster than the supply side for two consecutive quarters (showing that dairy production YOY > fresh milk production YOY). The bank observed that domestic contract milk and baby milk prices had shown positive performance since 26Q2, and animal husbandry profits have actually improved. At this point, the bank believes that domestic raw milk supply and demand are close to balance, and is expected to reverse at 26H2. Considering that milk prices are currently at a historically low level, subsequent supply reduction is expected to drive milk prices to continue to rise.
Downstream: demand for dairy products is gradually being repaired
In the short term, demand on the C-side of dairy products is gradually being repaired, speeding up the process of converging the gap between supply and demand; the B-side is working simultaneously. Deep processing of dairy products has the strongest short-term volume certainty. As domestic companies' production capacity climbs, domestic substitutation+downstream expansion increases the digestive carrying capacity of raw milk. In the medium to long term, the concept of increased consumption power and health is expected to drive the growth of the dairy industry, increase penetration rate and provide opportunities for volume growth. At the same time, it is also expected that structural upgrades will be completed through migration to high value-added products to achieve continuous and steady development.
Step into the right side of the cycle favors the faucet
On the one hand, the rise in milk prices directly benefits upstream animal husbandry leaders. It not only affects the income side, but also gradually balances supply and demand, compounded by the rise in the beef price center, and the number and loss of eliminated cows is expected to decrease; currently, feed prices are lower and ranches continue to reduce costs and increase efficiency, and the cost side is relatively beneficial; therefore, animal husbandry enterprises with strong management capabilities are expected to increase their share and improve performance in this upward cycle of raw milk. On the other hand, downstream dairy industry leaders have received indirect benefits. Judging from historical rules, the rise in the cycle is beneficial to leading dairy companies. The scale of powder spraying in the industry has shrunk, and the impairment losses of dairy companies have decreased. At the same time, the contraction in the supply of low-price raw milk has forced the rear production capacity to clear up, improving the competitive pattern of the industry. Leaders have increased their share with supply chain capacity and brand power.
Risk warning: supply-side devaluation falls short of expectations, downstream sentiment deteriorates, food safety issues.