GLMS SEC released a research report stating that it expects beef cattle prices to continue rising through 2026, which will increase culling income for upstream farms and drive profit improvement. The raw milk cycle is anticipated to turn upward in the second half of 2026, leading to price recovery per ton and a narrowing of impairment losses for upstream farms. The dual-cycle resonance of raw milk and beef cattle is expected to release profit elasticity for upstream farms. In the first quarter of 2026, leading dairy companies achieved market share gains and price stabilization, which were the primary sources of their better-than-expected performance. For these leading companies, the certainty of a return to steady revenue growth has increased. On the profit front, stabilization in pricing and promotional activities have facilitated a recovery. If the raw milk cycle enters an upward phase in the second half of 2026, there is potential for further margin improvement. The main views of GLMS SEC are as follows:

Upstream Farms: At Cycle Bottom, Awaiting Reversal Raw milk prices remained low throughout 2025, with industry capacity continuing to be rationalized. Leading farms saw sales volume increase due to higher per-cow yields, but the year-on-year decline in raw milk prices still dragged down their revenue from this segment. On the profit side, full-year feed costs decreased, and beef prices rose. Raw milk prices were largely flat quarter-on-quarter from the second half of 2025, leading to reduced losses for upstream farms in the latter half of the year, although annual profits have not yet turned positive. Currently, upstream farms are at the bottom of the cycle. It is projected that beef cattle prices will continue their upward trend in 2026. With ongoing culling in the broader upstream farming sector, continued capacity rationalization, and a moderate recovery in end-demand for dairy products, raw milk is expected to reach a supply-demand balance in the second half of 2026.

Midstream Dairy Companies: Stabilization and Recovery in 2025, Marginal Improvement in Q1 2026 Sector revenue in 2025 was roughly flat year-on-year, primarily due to a narrowing decline in the liquid milk base business and continued strength in some dairy sub-segments. Profits showed significant recovery from a low base, mainly driven by sustained low milk prices, a moderation in price wars leading to a slight narrowing of expense ratios, and a reduction in impairment losses and culling losses related to upstream operations. From a competitive landscape perspective, the gap between first-tier and second/third-tier dairy companies has widened further. Leading company Yili continued to expand its market share in 2025. It achieved a year-on-year turnaround to profit in Q4 2025 as the impact of impairment provisions for overseas business dissipated, with revenue and profit growth accelerating quarter-on-quarter in Q1 2026. Second and third-tier companies face pressure from declining market share, but some have still achieved solid performance through their own initiatives. For instance, New Hope Dairy's low-temperature milk business maintained high growth, with product mix upgrades driving profit release. Sanyuan Foods' performance gradually improved under optimized operational efficiency.

Risk Warnings: Raw milk price recovery falling short of expectations, unexpected fluctuations in feed prices, demand recovery lagging expectations, and food safety risks.