Guohai Securities: The “inflection point upward” signal for milk prices has now stabilized, and low temperature and deep processing are expected to continue to grow

The Zhitong Finance App learned that Guohai Securities released a research report saying that since April, the price of loose milk has rebounded sharply in some regions. The average price of fresh milk in the main producing regions rose from the bottom in July, and the “inflection point” signal for milk prices has already appeared. Dairy product production increased 5.8% year on year in the first half of 2026, confirming to some extent that demand is showing signs of recovery. Liquid milk is expected to stabilize in the future, and the two major directions of low temperature and deep processing are expected to continue to grow. Flexibility first, pattern optimization. 1) It is recommended to focus on animal husbandry targets that are expected to directly benefit from milk price reversals and meat and milk cycle resonance; 2) Focus on steady+high dividend targets.

Guohai Securities's main views are as follows:

The decline in milk prices in this round was deeper and took longer. Recently, signs of an upward inflection point have appeared

It takes about 24 months for dairy cows to produce milk for the first time. Combined with time delays in farm decision-making, the full cycle lasts 7-8 years. The scale of the current round of ranching has deepened significantly, and the period of decline in milk prices starting in 2021 has been extended to nearly 5 years. Since April, the price of loose milk has risen sharply in some regions, and the average price of fresh milk has recently risen from the bottom in the main production areas. The signal that milk prices have bottomed out and reversed is quite clear.

Supply and demand deconstruction: production stabilizes, deep processing takes over

1) Supply side: The supply of raw milk is determined by “number of cows kept x proportion of adult cows x yield”. Degradation in this round began in 2024 and dropped to 5.77 million heads in June 2026. However, data from sample companies (Youran Animal Husbandry, Modern Animal Husbandry, China's Shengmu) showed a sharp increase in the share of adult cows, and the yield increased by more than 5% from 2024-2025, leading to “a decline in storage without a drop in production.”

2) Demand side: China's dairy production continued to decline in 2023-2025. Dairy production increased 5.8% year-on-year in the first half of 2026, confirming to some extent that demand is showing signs of recovery. Liquid milk is expected to stabilize in the future, and the two major directions of low temperature and deep processing are expected to continue to grow.

Path deduction: How to determine slope and space?

1) Supply and demand balance estimation: The supply and demand pattern is expected to improve marginally in 2026, the balance between supply and demand is expected in 2027, and a tight state of supply and demand may be in short supply in 2028. On the supply side, the bank expects that backup cow faults will gradually spread from the second half of 2026, and the number of adult cows kept in 2026-2028 may decline. However, due to the increase in yield, the year-on-year increase in raw milk production in 2026 is small, and production in 2027 and 2028 is basically the same as 2026. On the demand side, it is estimated that demand for raw milk increased by 4.9%/4.2%/4.6% year-on-year in 2026-2028. Considering that it is rare to see a significant decline in raw milk production from 2027-2028, the rise in milk prices in this round may be a “slow slope” rather than a “V type”.

2) Intensive catalysis in the second half of 2026: In August-September, we will focus on the preparation boom during the Mid-Autumn Festival National Day peak season and the impact of the El Niño ultra-high temperature weather on yield; focus on future storage plans and feed cost trends reflected in the new year of silage in August/September; advance the Spring Festival in 2027, or boost demand for raw milk in December. Furthermore, once the beef import quota is used up, it is expected that beef prices will continue to rise, and the meat and milk cycle may resonate.

3) Spatial calculation: The bank determined that in 2027, milk prices are expected to recover to above 3.22 yuan/kg for the entire industry. The first anchor point may be the break-even line of 3.50 yuan/kg for deep processing; looking upward, if measured in a comparable scenario, the increase in the second round of milk prices during the upward period, milk prices in this round are expected to rise 30% to 3.91 yuan/kg from the bottom.

Risk warning: Ranch exceeds expectations; yield increases exceed expectations; demand weakens again; deep-processing capacity construction and operating rates fall short of expectations; import shocks, epidemic and extreme weather; historical raw milk cycle reference effectiveness risks; data estimates are biased