Deep Capacity Reduction in Beef Cattle; Industry Poised for a 2+ Year Profit Cycle

Overview

Changjiang Securities released a special tracking report on the beef cattle industry, with the core conclusion that the industry is poised to enter a major profit cycle lasting over two years. The report points out that domestic beef cattle capacity has significantly decreased, with national cattle inventory at the end of Q1 2026 down 10.8% from the end of 2023, and destocking of breeding cows being even more profound. Combined with stable import quotas for 2026-2028, major overseas producing countries entering a production cut cycle, and limited restocking enthusiasm among farmers due to previous deep losses, the beef supply gap is expected to continue widening over the next two years. In the short term, as seasonal demand recovers in the second half and import volumes decrease sequentially, there are catalysts for accelerated cattle price increases.

Core views

Supply Side: The effects of domestic capacity reduction have materially manifested. As of the end of Q1 2026, national cattle inventory was 93.73 million head, a 10.8% decrease from 105.09 million head at the end of 2023. Since breeding cow destocking began in mid-2023, and it takes approximately two years for newborn calves to reach slaughter weight, based on biological cycles, domestic beef cattle slaughter volumes are expected to hit an inflection point in the second half of 2025, with the supply gap projected to last until 2027-2028. Regarding imports, China implemented safeguard measures on imported beef for 2026-2028, keeping within-quota tariffs unchanged but imposing an additional 55% tariff on above-quota imports. As of mid-May 2026, Australia's quota utilization rate reached 80%, and Brazil's Q1 utilization rate reached 46.3%, suggesting a high probability of significant sequential declines in import volumes in the second half. Meanwhile, major global beef-producing countries have entered a 'rebuilding phase' due to prior droughts and cost pressures, actively retaining stock for reproduction, which has sharply reduced market supply. Narrowing price differentials between domestic and international markets further weaken the impact of imports. Demand Side: In the medium to long term, China's per capita beef consumption is only 5.3 kg/person, far below the levels of over 20 kg/person seen in countries like the US and Brazil. With rising incomes and consumption scenarios penetrating household dining tables, there remains substantial room for demand growth. In the short term, beef consumption exhibits clear seasonality. The period after Spring Festival to mid-year is the off-season, while from the second half of the year to February of the following year, driven by dropping temperatures and concentrated holidays, demand for hot pot, barbecue, and processed meat products surges, increasing slaughterhouses' stocking willingness, and consumption gradually enters the peak season. Restocking and Profitability: Although the recovery in fattened cattle prices in 2026 restored self-breeding and self-raising profits to RMB 3,000-3,500 per head, the deep losses in 2023-2024 (with losses reaching RMB 500-1,000 per head) have strained farmers' capital chains and damaged confidence. Current restocking shows structural divergence: the fattening segment sees slight restocking due to short-term profits, but willingness to restock breeding cows, which determines long-term capacity, remains persistently low. Many smallholders have exited, with only a few large-scale farms actively restocking. This mismatch of 'rising cattle prices but stagnant breeding cow numbers' implies slow capacity recovery, likely prolonging the subsequent supply shortage cycle and supporting the length and height of this profit cycle.

Analysis framework

The report employs a typical analytical method combining a 'Supply-Demand Framework + Biological Cycle Lag Projection.' First, by reviewing three historical cattle cycles, it identifies that the current cycle has shifted from past 'demand-driven' to 'supply-driven,' establishing supply-side changes as the core analytical thread. Second, leveraging the biological characteristic of beef cattle farming requiring over two years, it uses current changes in breeding cow inventory as a leading indicator to project commercial cattle slaughter trends for the next two years, thereby quantifying the time window for the supply gap. Third, it introduces a global perspective, placing domestic supply and demand within the context of global beef trade patterns, assessing the marginal impact of external supply by analyzing the implementation progress of import quota policies and inventory cycles in major overseas producing countries. Finally, combining micro-level survey data (such as farmers' financial status and restocking willingness structure), it verifies whether the supply-demand contradictions derived from macro data are confirmed at the industrial level, forming a complete logical loop from macro cycles to micro behaviors.

Methodology notes

• Cycle and Prosperity FrameworkCapacity/Equipment Cycle (Juglar)

  Supply lag effect caused by the biological breeding cycle of beef cattle

  The entire process from breeding cow insemination to fattened cattle slaughter takes 25-28 months. This means that current capacity reduction does not immediately reflect in market prices but has a lag of approximately two years. The report utilizes this biological attribute, treating the current decline in breeding cow inventory as the core leading indicator for predicting supply gaps over the next two years, which is key to understanding long-cycle fluctuations in animal husbandry.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Price elasticity analysis under dual domestic and international supply constraints

  The report analyzes not only domestic capacity but also treats imported beef as a significant supply variable (accounting for approximately 26% of total supply). By analyzing the hard constraints of import quota policies and the soft constraints of major overseas producing countries entering a production cut cycle, it judges the loss of external supply elasticity. When both domestic and international supplies contract simultaneously, price sensitivity to demand changes increases significantly, serving as an important basis for judging the height of this cycle.

• Event Game Theory and Behavioral FinanceExpectation Gap/Expectation Management

  Alienation of restocking behavior due to damaged balance sheets of farmers

  Typically, rising prices stimulate restocking, but the report observes a divergence in this cycle where 'cattle prices rise, but breeding cow numbers do not.' This is because previous deep losses damaged farmers' balance sheets and confidence, leading them to prioritize 'cash recovery' over expansion. This change in behavioral pattern constitutes a market expectation gap, implying that capacity recovery will be slower than predicted by traditional models, thereby extending the profit cycle.

Key data

• National Cattle Inventory at End of Q1 202693.73 million headDown 10.8% from the end of 2023, indicating significant capacity reduction
• Self-Breeding and Self-Raising Profit Per Head in 2026RMB 3,000-3,500The industry has returned to profitability, but remains in a recovery phase compared to previous loss magnitudes
• Australian Beef Import Quota Utilization Rate80% (as of May 15, 2026)Fast consumption suggests a significant sequential decline in import volumes in the second half
• China's Per Capita Beef Consumption5.3 kg/person (2024)Only about 1/4 of that in countries like the US and Brazil, indicating significant long-term growth potential
• Proportion of Calf Costs in Free-Range Beef Cattle Farming55%2024 data, reflecting high seedling costs due to low reproductive efficiency

Impact & implications

The report believes that the beef cattle industry is standing at the starting point of a new long-term profit cycle. For the farming sector, the rigidification of the supply gap and low restocking willingness imply that high-profit conditions may persist for over two years, providing relevant companies with a rare window for performance repair and growth. In the short term, the seasonal demand peak in the second half combined with shrinking imports may serve as a catalyst for accelerated cattle price increases, with fattened cattle prices in northern production areas potentially approaching the RMB 30/kg range. In the medium to long term, the systemic upward shift in the pricing center for domestic beef will gain a solid foundation, and the height and duration of this cycle are expected to exceed general market expectations.

Risks

• Extreme weather (e.g., El Niño, La Niña) causing pasture shrinkage, affecting farming operations
• Large-scale outbreaks of animal diseases such as foot-and-mouth disease, impacting industry capacity and triggering sharp price fluctuations
• Significant increases in feed prices (corn, soybean meal) due to factors like trade friction, eroding farming profits
• Downstream beef sales falling short of expectations, exacerbating losses and triggering a new round of breeding cow culling

What to watch

• Recovery in willingness to restock breeding cows and actual restocking volumes
• Quota utilization progress in major importing countries (Australia, Brazil, etc.) and actual import volumes after exceeding quotas
• Strength of catering consumption recovery in the second half and the actual realization of the seasonal peak
• Whether fattened cattle prices can successfully break through and stabilize at the RMB 30/kg threshold