Guolian Minsheng Securities: The beef cattle cycle and milk cycle determine strong certainty in the dairy industry chain.

Guolian Minsheng Securities released a research report stating that the beef cattle price is expected to continue rising in 2026, with increased income for upstream ranchers driving profit improvement; raw milk is expected to enter an upward cycle in 2026H2, with upstream ranchers seeing price recovery and narrowing devaluation losses. The dual resonance of raw milk and beef cattle cycles is expected to release profit elasticity for upstream ranchers. In 26Q1, leading dairy companies achieved market share gains and stabilized prices, which is also a major source of their better-than-expected performance. For leading companies, the certainty of income recovery and steady growth has increased, and profits have been restored due to stable prices and promotion. If the raw milk cycle enters an upward phase in the second half of 2026, there is a possibility of further profit margin improvement. The main points of Guolian Minsheng Securities are as follows: Upstream ranchers: Cycle bottom, waiting for a reversal In 2025, raw milk prices remained relatively low, industry capacity continued to decrease, and top ranches saw a slight increase in sales due to higher productivity, but the annual average price of raw milk still declined year-on-year, dragging down ranch revenue. In terms of profit, feed costs decreased throughout the year, and beef prices rose, with raw milk prices remaining relatively stable from the second half of 2025, leading to reduced losses for ranchers in the second half of the year, but the full-year profits have not turned positive yet. Currently, upstream ranchers are at the bottom of the cycle, with beef cattle prices expected to continue to rise in 2026, as social ranchers continue to slaughter cattle and drive the cycle, along with the continued decrease in capacity and mild recovery in dairy product terminal demand. Raw milk is expected to achieve supply-demand balance in the second half of 2026. Midstream dairy companies: Stabilization and repair in 2025, marginal improvement in 26Q1 In 2025, sector revenue remained flat year-on-year, mainly due to a narrowing drop in liquid milk baselines and continued prosperity in some segments of dairy products; profits significantly improved from a low base, mainly due to the continued low raw milk prices, a slight decrease in price wars, and reduced devaluation and cattle losses related to the upstream. In terms of competition, the gap between top-tier dairy companies and second and third-tier companies widened further, with market leader Yili continuously expanding market share in 2025, achieving a year-on-year profit turnaround in 25Q4 after dissipating the impairment impact on overseas operations, with revenue and profits accelerating in 26Q1; second and third-tier companies faced pressure to lose market share, but some companies achieved good performance through their own actions, such as New Hope Dairy maintaining high growth in the lower-end dairy business and Beijing Sanyuan Foods gradually improving performance under operational efficiency optimization. Risk warning: raw milk price recovery falls short of expectations, feed prices fluctuate more than expected, demand recovery falls short of expectations, food safety risks.