Cepea, January 4, 2020 – The year of 2020 was marked may adversities. Concerning demand, the covid-19 pandemic changed consumers’ behavior. As regards supply, the weather hampered dairy farming in Brazil, since rainfall was irregular and also due to the severe drought, primarily in southern Brazil. Both factors resulted in an unbalance between supply and demand, pushing up the prices paid to dairy farmers.
According to Cepea surveys, between January and November 2020, milk prices (net “Brazil average” rose by a staggering 47.7%, influenced by consecutive valuations from June to October. In October, quotes set a real record in the series of Cepea, averaging 2.1586 BRL/liter. On the average of 2020, prices closed at 1.7135 BRL/liter, 16.4% up from the average in 2019, in real terms (values were deflated by the IPCA).
Social distancing measures in late March because of the covid-19 partially interrupted food services, leading to uncertainties in the sector. As a consequence, dairy plants reduced milk purchases and warned farmers about lowering production in April. The prices of the milk produced in that month had a one-off drop that influenced production, which remained low in the following months (the weather influenced production too).
However, consumption was underpinned by the emergency aid. Sales of dairy products had positive performance from May, and inventories of UHT milk, mozzarella cheese and powdered milk continued low. This scenario kept prices on the rise, hitting records – the highest price level was set in September. Thus, the milk prices paid to dairy farmers continued high, encouraging an increase in production, which occurred gradually. Thus, the competition between dairy plants for milk was high. However, exports increased in 2020 too, favored by the strong dollar.
Up to August, dairy plants managed to pass on the price rises of milk to final consumers due to the firm demand the low dairy inventories. However, that became more difficult after September as dairy prices set records. The reduction of the emergency aid, higher unemployment and the high prices in the retail market (not only of dairy products but also of other products) weakened the demand for dairy products. Distributors pressured for lower prices, pressing down the quotes paid to farmers in November (related to the milk produced in October).
However, milk prices dropped as grain quotes increased. Besides, irregular rainfall late in the year because of the La Niña phenomenon affected both grains production and the availability of pastures.