Competition for milk keeps the price paid to dairy farmers on the rise in Brazil

Cepea, April 2, 2020 – Milk prices (related to the volume produced in February and paid to dairy farmers in March) increased 1.4% compared to that paid in the previous month, to 1.4376 BRL per liter on the net “Brazil Average”, according to Cepea surveys. The upward trend of the prices paid to dairy farmers, which has been observed since December/19, is linked to the competition between dairy plants for milk, since supply has been low.

 

The Milk Production Index (ICAP-L) dropped 4.35% on the “Brazil Average” between January and February and 7.9% since the last working day last year (Dec. 28). Lower milk supply (during the seasonal period of the crop) is primarily linked to unstable weather conditions. Besides, other factors have discouraged an increase in milk production, such as higher prices for concentrated milk (boosted by the frequent valuation of grains) and high slaughter of milk cows, due to the price rises in the beef cattle market. Also, the difficulties faced in previous years, which undermined long-term investments in dairy farming, constrained the current growth potential of the activity.

 

CORONAVIRUS – The recommendation to avoid social contact made consumers concerned about food supply. Thus, wholesalers and retailers increased the demand for dairy products in March, mainly UHT milk. Between March 2 and 27, UHT milk prices (nominal terms) received by dairy plants in São Paulo State rose by a staggering 24.7%.

 

On the other hand, the closure of food services affected the consumption of chilled dairy products, such as cheese – which account for more than 30% of the milk purchased and used by dairy plants. Thus, in a few weeks, the income of dairy plants may decrease, which will be passed on to dairy farmers. In some regions, primarily those that allocate most of the milk purchased to cheese production, milk collection has been interrupted. It is worth to mention that, during truckers’ strike in Brazil, in May last year, milk collection was interrupted for a week, leading to the disposal of more than 300 million liters of milk, resulting in a 1 billion BRL loss to the sector.

 

(Cepea-Brazil)

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