High production costs and weather issues lead to valuations, but profitability continues impaired

Cepea, September 2nd, 2021 – Despite the weak demand and negative results in the Brazilian dairy market in July, domestic dairy plants did not manage to impose price drops for milk. Weather issues and frosts reduced supply even more between July and August, increasing agents’ uncertainties about the volume produced. The competition between dairy plants for milk increased in that period too.

 

In this scenario, Cepea surveys show that the price of the milk produced in July and paid to farmers in August increased by 2.1% compared to that in the previous month, hitting 2.3595 BRL/liter on the net “Brazil average”, a new real record in the series of Cepea, which began in 2005 – data were deflated by the IPCA from July/21.

 

It is important to highlight that milk valuations do not ensure profit margins to farmers, since production costs have increased sharply too, majorly at this time of the year, when the weather does not favor dairy farming. Cepea surveys show that the Operation Effective Cost (OEC) of dairy farming rose by almost 13% on the Brazil average between January and July, while revenue increased by 6% in the same period.

 

The recent frosts that hit central-southern Brazil sharply reduced the quality of pastures. Thus, in order to avoid major losses in milk production, farmers increased the demand for mineral supplementation, pushing up the prices for this input by almost 4% in July. The price for concentrated feed rose by 0.3% on the Brazil average in July. Higher feed costs are linked to the valuation of grains. Fertilizers prices increased sharply in July too, by almost 8%, due to higher demand.

 

The Cepea Index for Milk Production (ICAP-L) rose by 1.68% between June and July, indicating a slight increase in milk supply, however, this volume is still insufficient to supply the domestic market. The highest increases were observed in Santa Catarina (3.7%), Rio Grande do Sul (2.9%) and Goiás (2.7%).

 

(Cepea-Brazil)

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