Low supply should keep competition for milk fierce

Cepea, January 15, 2021 – Milk supply should continue low in 2021, majorly in the first quarter of the year, with volumes below the average from the same period of 2020. This scenario is linked to the unfavorable weather registered last year (dry and with high temperatures, which should damage pastures) and the continuous increase of production costs (the quotes of the two major components of feed, corn and soybean meal, have hit record levels).


As regards demand, low supply should keep the competition between dairy plants for milk to replenish inventories. In this scenario, the prices paid to dairy farmers, at least in the first quarter of 2021, may continue firm and, therefore, much higher than that in the same period of 2020 (when the average was 1.4655 BRL/liter, in real terms – quotes were deflated by the IPCA from December/2020). It is worth to mention that, in Dec/2020, the price paid to Brazilian dairy farmers for the milk delivered in November averaged 2.1262 BRL/liter on the net “Brazil average”, in real terms.


The decrease in the demand for dairy products and the reduction in the purchase power of Brazilian consumers – due to the covid-19 pandemic, the end of the emergency aid paid by the federal government and the higher unemployment rate – should continue to constrain consumption of dairy products. This scenario, in turn, tends to lead dairy plants to reduce the average annual levels of the milk prices paid to dairy farmers.


However, at the end of 2020, prices for dairy products were still at high levels compared to that in the same period of 2019. In December/2020, the average price for UHT milk hit 3.23 BRL/liter, 28% up from that in December/19, in real terms.


PRODUCTION COSTS – For one more year, production costs should be a challenge for Brazilian dairy farmers, since prices for corn and soybean meal should continue firm in 2021, underpinned by the high demand (domestic and international) for these products. Thus, the purchase power of diary farmers against these inputs may decrease and constrain possible production increases.





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