China Securities Co.,Ltd.: The correction does not change the big cycle logic. The current may be a good time to lay out the animal husbandry.

China Securities Co., Ltd. released a research report stating that in the short term, the overall stock prices of dairy industry related companies have experienced a slight downturn due to the recent slowdown in the liquidation of dairy cows in the past two months. However, short-term factors will not impact the underlying cyclic logic, and the resonance between meat and dairy under the cattle cycle remains unchanged. The correction under short-term data impact has instead become a very good opportunity for layout under the current cycle speculation. Looking ahead, with the seasonal weakening of demand and increasing operating pressure on related dairy farm entities, the trend of liquidation of dairy cows will continue, and the turning point of the lactation cycle is approaching. The main points of China Securities Co., Ltd. are as follows: Since mid-August, dairy industry stocks, represented by YOURAN DAIRY, have experienced a significant overall correction, causing some concerns in the market. The reasons for this round of correction in the dairy industry are mainly as follows: 1) Exceeding expectations in the liquidation of dairy cows in specific months leading to rapid overall uptrend of the sector, accumulation of short-term profits, and some correction pressure; 2) Entering August and September, the phenomenon of heat stress in dairy cows on the supply side affects short-term production, coupled with short-term stocking before the holidays on the demand side, the supply-demand situation temporarily improves, resulting in a slight slowdown in the liquidation pace of dairy cows monitored by the market. However, the short-term bearish data in this round will not have any impact on the resonance logic of the meat and dairy cycle, as the trend of liquidation of dairy cows will continue after entering the off-season. Beef cattle have entered a phase of sustained price increase, and under the mechanism of meat-dairy resonance, the trend of rising prices for meat and dairy products in the coming years remains clear. Looking at beef cattle, prices continue to reach new highs, the characteristics of the right side of the cycle are clear, and it can be clearly seen that the pattern of tight beef supply in the years to come will further intensify. According to the latest data from the Ministry of Agriculture and Rural Affairs, as of October 11, the average wholesale price of beef in China has reached 66.04 yuan/kg. Despite a slight correction from the high point of 66.32 yuan before the National Day, it is still close to the new high level in a period of time, with post-holiday demand downturn not significantly affecting beef prices. The overall trend of rising beef prices is very noticeable. At the same time, according to the latest disclosed prices of beef and beef in the Ministry of Commerce, both prices reached 64.58/71.26 yuan due to the impact of double festival stocking, both reaching new highs in recent time. Combined with the current price trend, it can be clearly judged that beef prices have entered a clear phase on the right side of the cycle. At the same time, looking at the data on beef cattle stocks disclosed by the National Beef Association, by July 2025, China had 109,800 beef cattle, about 20% lower than the 139,300 beef cattle reported in January 2024. Due to the fact that breeding farmers tend to eliminate cows first in the loss cycle to meet the financial needs of fattening bulls, we can infer that the liquidation of dairy cows is expected to be significantly higher than the overall 20% ratio of beef cattle. Looking at the breeding cycle of beef cattle, the deep liquidation of cows in 2023-2024 will greatly boost beef prices in 2026-2027, and there is a high probability that beef prices will accelerate in the next 2 years and hit new highs. From the perspective of raw milk, despite a brief slowdown in liquidation, the logic of the overall raw milk cycle turning point remains unchanged. From the latest raw milk prices, as of September 30, the purchase price of raw milk in the main producing areas of China has stabilized at 3.04 yuan/kg, remaining in the low range. Taking Shandong as an example, below the purchase price of raw milk at 3.04 yuan/kg, compared to the comprehensive cost of 3.45 yuan, the overall price is still below the cash cost level, indicating deep losses overall. The short-term Q3 silage season has also significantly increased the financial pressure on related farms and is expected to accelerate the pace of liquidation of dairy cows to a large extent. At the same time, the certainty of rising beef prices in the coming years will significantly increase the willingness of farms to cull cows, further accelerating the liquidation of dairy cows and speeding up the turning point of the raw milk cycle. Risk warning Risk of a significant increase in raw material costs: Companies related to the dairy industry mainly use feed materials such as soybean meal and corn. If bulk prices such as corn increase significantly for various reasons in the future, even if raw milk prices rebound after hitting bottom, the overall profitability of the farms will be impacted. Risk of slower-than-expected liquidation pace of dairy cows: If for various reasons, the liquidation of dairy cows does not proceed as expected in the future, it may to some extent slow down the pace and extent of the rebound in raw milk prices, affecting the expected rebound in company profitability. Risk of animal diseases: If a large-scale epidemic occurs in the future, it may lead to a significant reduction in dairy cows and beef cattle inventory in the short term, posing a risk of significant impairment of biological assets for companies.