China Dairy Sector: May 2026: cow herd contraction accelerates; demand recovery stays on track

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China Dairy Sector: May 2026: cow herd contraction accelerates; demand recovery stays on track

China Dairy Sector Equities

ChinaMay 2026: cow herd contraction accelerates;

demand recovery stays on track Consumer, Non-Cyclical

Nina Jiang

Analyst

nina.jiang@ubs.com

Supply: herd contraction accelerated; industry losses persisted +852-2971 5681

Data from the Ministry of Agriculture indicate a larger-than-expected contraction in the Christine Peng, CFA

milkable cow herd, declining 0.8% MoM (-48k heads) and 4.2% YoY. The accelerated Analyst

contraction was largely driven by normalization following lockdown-related disruptions christine-y.peng@ubs.com

associated with the South Africa foot-and-mouth disease outbreak, which weighed on +852-2971 7571

herd expansion and replacement activities. Despite the smaller herd base, raw milk Steven Dang

production increased 4.3% YoY, underpinned by a 4.9% YoY improvement in per-cow Associate Analyst

yields, reflecting ongoing efficiency gains at larger-scale farms. However, industry steven.dang@ubs.com

profitability remained under pressure, with losses continuing to broaden— +852-3-712 2195

approximately 69.1% of farming entities were estimated to be operating at a loss in

May, underscoring persistent margin stress at the upstream level and reinforcing the

likelihood of continued supply rationalization.

Demand: liquid milk consumption continued to recover, led by volume growth

Channel checks indicate that liquid milk consumption continued its recovery trajectory

in May, with growth primarily volume-driven. By segment, fresh milk maintained its

outperformance, supported by improving underlying consumer demand and ongoing

premiumization trends. At the company level, both Mengniu and Yili are expected to