It was just a few days ago that the HighGround team was writing about Chinese dairy stocks plummeting to multi-year lows and crashing milk prices. But if there is one thing we have learned over the decades of being involved in commodities, it’s that China always ensures their farmers and food supply systems are taken care of.
First, there was an announcement from the Chinese government that they were rolling out the strongest stimulus measure since the pandemic. And now overnight, shares of leading Chinese dairy companies, including China Mengniu Dairy Co. (Mengniu) and Inner Mongolia Yili Industrial Group Co. (Yili), saw significant gains as the government announced a series of financial measures aimed at aiding the beef and dairy industries. In less than two weeks, with the bulk of gains flowing in last night, Mengnui has experienced a near-50% jump, Yili +31%, Want Want China Holdings Limited is UP 13% and Bright Dairy & Food Co. Ltd UP 17%. Mengnui’s intraday gains following the government announcement were the strongest since 2008!
The surge follows the rollout of targeted support from the government, including loans, subsidies, and consumption vouchers aimed at addressing excess production capacity and encouraging dairy consumption. With dairy consumption in China still well below the global average, these new policies are expected to stimulate growth in the sector.
In addition to these measures, China’s Agriculture Ministry has introduced policies to stabilize beef and dairy production, reduce feed costs for farming households, and provide loan extensions and credit insurance to farmers facing temporary financial difficulties. These initiatives, alongside the government’s investigation into EU dairy imports, are part of a broader strategy to boost the domestic dairy industry while limiting overseas competition.
This push for economic stimulation is also tied to the broader goal of meeting China’s GDP growth target for the year. As the government approaches the National Day holiday, the pressure is on to boost economic activity and public sentiment. The newly introduced measures, including direct cash handouts and consumption incentives, are part of a larger effort to restore consumer confidence and ensure the country meets its growth goals by year-end.
Local reports from Yinchuan, a key dairy-producing region, highlight the successful implementation of a 20-million-yuan loan guarantee fund designed to help dairy companies manage rising feed costs and working capital needs. This fund has already issued loans to several dairy enterprises, helping them stabilize production amid increasing costs and low milk prices.
With dairy consumption expected to rise and production improvements underway, analysts predict a positive outlook for China’s dairy sector, especially as the country pushes to expand its milk production base and improve efficiency across the supply chain. While this is bullish overall for global milk consumption, there is a clear and ongoing effort to reduce reliance on imports. HighGround has emphasized this many times: China’s demand landscape continues to shift, and the commodities likely to benefit from these latest announcements will remain proteins—specifically caseins, whey products, and cheese.
But do not worry, bulls, we have another theory to consider. With negative milk production trends becoming more common in recent Chinese data due to herd consolidation, how will domestic producers respond if consumption rises faster than expected? And let’s not forget China’s August dairy export volumes, which continued to show solid gains (see August data below).
What if China has overcorrected on milk production and struggles to keep pace with a rise in domestic demand? This could be a critical dynamic to watch in the coming months.
- China’s August Whole Milk Powder (WMP) exports were stellar, to say the least. Shipments are the highest since the 2008-2009 time period and the growth is due to the same region that was a prevalent destination back then: Venezuela. China exported 3,225MT to the country, 73.5% of market share and against 0MT last year. China started shipping to Venezuela again in July, which were the first reported exports to the country since January 2009. Other destination markets worth noting were Hong Kong, Nigeria and Singapore.
- Butter also reported growth with product sailing to the Middle East; 299MT shipped to Saudi Arabia and 299MT to Bahrain, both against 0MT last year. Another 140MT sailed to the Philippines and 25MT to Mongolia.