Central China: Supply and demand are moving towards equilibrium, and raw milk prices are expected to stabilize.

Central China released a research report stating that according to the monitoring data of the Ministry of Agriculture, in 2024, the number of dairy cows decreased by 4.5% compared to the previous year, and the production of raw milk decreased by 2.8% year-on-year. Based on the situation in 2023, it is estimated that the number of dairy cows in 2024 will be 6.3 million heads, and the production of raw milk will be 41.6113 million tons. In 2024, both the number of dairy cows and the production of raw milk decreased, creating conditions for the stabilization of raw milk prices. Since 2024, the supply and demand situation in the raw milk market has improved, and it is expected that raw milk prices will stabilize within the year. The balance of supply and demand in the upstream of raw milk is beneficial to the overall development of the industry, and the valuation of the dairy industry in the secondary market is expected to be restored. It is recommended to pay attention to the dairy industry, especially upstream raw milk supply companies. Key points of Central China are as follows: Since 2018, the number of dairy cows in China has increased significantly. According to the data of the China Dairy Industry Yearbook, by 2022, the number of dairy cows in China reached 11.608 million heads, an increase of 1.231 million heads compared to 2018, also reaching the highest point since 2008. The significant increase in the number of dairy cows is due to several reasons: the improvement of the scale of farming; the improvement of the mechanization and intelligence level of farms; the improvement of farming techniques leading to an increase in the yield per cow. In short, the improvement of farming techniques is a very important factor in the increase in the number of dairy cows. Due to the increase in the number of dairy cows, domestic raw milk production has grown rapidly. According to the 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, a growth of 37.27% over ten years. However, after 2022, domestic milk consumption was relatively weak, with downstream consumption growth lagging behind the increase in upstream raw materials, leading to more serious upstream surplus problems. According to Li Shengli, Vice President of the China Dairy Association and professor at China Agricultural University, in 2022, domestic consumption of liquid milk decreased for the first time in eight years. After the decrease in liquid milk consumption, the surplus of raw milk supply reached 3.4 million tons. Due to the relative surplus of supply, domestic raw milk prices have continued to decline, leading to a decline in profits and even losses in the upstream animal husbandry industry. As of February 21, 2025, the average price of raw milk in the main producing areas of China has dropped to 3.1 RMB/kg, a decrease of 29.22% from the peak in August 2021, lasting for more than three years. Due to the long-term decline in raw milk prices, the performance of livestock farming enterprises at the upstream of the industry chain has declined or even suffered losses. In the first three quarters of 2023 and 2024, the net profit of Lanzhou Zhuangyuan Pasture (002910.SZ) decreased by 233.68% and 581.62% respectively, while the net profit of Xinjiang Western Animal Husbandry (300106.SZ) decreased by 171.58% and 2029.64%. The interests of dairy companies and the upstream animal husbandry industry are closely related, and an increase in raw milk prices will benefit the entire industry chain. During the surplus stage of raw milk, middle stream dairy processing companies often store raw milk in powder form. According to Li Shengli, Vice President of the China Dairy Association and professor at China Agricultural University, in 2023, the inventory of powdered milk reached 230,000 to 300,000 tons. The continuous decline in raw milk prices will lead to a continuous devaluation of inventories for dairy companies. In addition, if dairy companies have stakes in the upstream, the investment income of dairy companies will also decrease accordingly. Therefore, balancing supply and demand in the upstream and the recovery of raw milk prices will benefit the entire industry chain and help upstream and downstream enterprises to develop healthily for mutual benefit. Risk Warning Weak growth in downstream demand for dairy products; risk of animal diseases.