Cepea, August 5 2019 – The prices paid to dairy farmers in July (for the milk delivered in June) dropped 7.9% (or 12 cents per liter) compared to that paid in the previous month – that was the first monthly drop in 2019. According to Cepea surveys, the net “Brazil average” closed at 1.4064 BRL per liter in July, 7.8% lower than that in the same period last year. Still, prices have increased 11.5% this year (since December 28 2018), in real terms – values were deflated by the IPCA from June/19.
Price drops reflected the slow trading pace for dairy products in the last months as well as the tight margins of dairy plants. The steepest price drops were observed in the states of Santa Catarina, Rio Grande do Sul and Goiás, by 13%, 12% and 11.9%, respectively.
The Milk Production Index (ICAP-L) increased 3.4% on the “Brazil average”, influenced by the production in southern Brazil, which is in harvest period. Still, the productive potential of that region has been limited, since winter forage is not developing well, due to unfavorable weather. In the first semester of 2019, the Effective Operational Cost (EOC) rose by 0.6% on the “Brazil average”.
According to the seasonal movement, in September, prices tend to drop, after the offseason peak in southern and central-western Brazil. This year, the price behavior in the Brazilian dairy market has been similar to that in 2017, with high price levels in the first semester, and a steep decrease in the second half of the year, as production increases. This year, however, the output should not be as larger as in 2017, since dairy farmers are cautious about investing in the activity in the long term, in light of the current scenario.
Besides, dairy companies still have difficulties to increase the minimum price level asked for the by-products. In the wholesale market of São Paulo, the UHT milk price dropped 4.8% between June and July, closing at 2.35 BRL per liter (monthly average with prices collected until July 26). Mozzarella cheese quotes, however, remained stable, averaging 17.62 BRL per kilo. In the spot market, milk prices increased in the states surveyed in the second fortnight of July, indicating milk supply is not enough to replenish plants’ inventories.