Cepea, February 4, 2020 – The price of the milk paid to dairy farmers in January (related to the milk produced in December/19) averaged 1.36835 BRL per liter on the net “Brazil average”, 1.1% up compared to that in the previous month and 2.2% higher than that observed in Jan/19. This is the highest real level for a month of January in all Cepea series, Valuations are linked to the competition between dairy plants for the raw material, since supply has been low – this scenario is not typical for this time of the year, when production usually increases in southeastern and central-western Brazil and remains stable in the southern region.
Data from Cepea shows that the Milk Production Index (ICAP-L) decreased 1.2% between November and December (on the “Brazil average”. This result is linked to the 7.3% production decrease in Rio Grande do Sul, 1.4% in Minas Gerais and 0.5% in Goiás.
The slow production increase during the Brazilian spring, due to rains delay, kept supply low in southeastern and central-western Brazil, underpinning quotes at high levels. In the southern region of the country, production decreased more than the expected, due to lower rains. In Rio Grande do Sul, high temperatures and the drought affected production, since the animals had less to eat – pastures availability was lower and corn silage production.
Added to that, it is worth to highlight that both production costs and dairy cow slaughter increased, influenced by the high price levels in the beef cattle market, which also hampered milk production in the last quarter of 2019. Therefore, low supply changed the typical price behavior at that time of the year.
Difficulties to increase milk production in southeastern and central-western Brazil during the crop and the increase in production costs are concerning agents from the sector. Low inventories of dairy products pushed up milk prices in the spot market of Minas Gerais by 5% in January, while for the UHT milk, quotes dropped 1.5%, due to the pressure from distributors. Thus, milk prices are expected to remain firm in the first quarter of 2020.