Shrinking dairy herd starts to support milk prices in China

After several years of decline, raw milk prices in China are showing the first signs of recovery. In the third week of July, the average price in key producing regions rose to 3.05 yuan/kg, up 0.3% year on year.

The market is being supported by a contraction in the production base. As of the end of June 2026, China’s dairy cow herd had fallen by 4.3% y/y, while the number of dairy farms declined by nearly 20%.

In the first half of the year, contract milk prices reached a bottom and stabilized, while spot bulk milk prices have already started to rise. Industry participants expect prices to move toward a more sustained recovery in the second half of 2026.

However, demand has not yet fully recovered. According to NielsenIQ, total dairy sales in China fell by 9.7% y/y in May and 8.6% in June, while output from large dairy processors increased by 5.8% in the first half of the year.

By 2027, the smaller dairy herd and a gradual rebalancing of supply and demand could support further gains in milk prices. This may reduce the advantage of cheap raw milk for smaller producers and strengthen the position of major dairy companies.

Tags: prices, Dairy, dairy cattle, China