Lower supply pushes up the price paid to dairy farmers by almost 10% in June

Cepea, July 2, 2020 – Lower milk supply in May increased the competition between dairy plants for the raw material, pushing up the prices paid to dairy farmers in June. This scenario was observed in all the Brazilian states surveyed by Cepea.

 

On the net “Brazil average” (which considers the states of Bahia, Goiás, Minas Gerais, São Paulo, Paraná, Santa Catarina and Rio Grande do Sul), the price paid to dairy farmers in June (related to the milk produced in May) hit 1.5135 BRL/liter, a staggering 9.8% up compared to that in the previous month. In real terms (values were deflated by the IPCA from May/2020), the average price in June is 2.7% lower than that registered in June/2019, but it is the highest since July last year.

 

It is worth to highlight that prices tend to increase between March and August, when milk production is hampered by the low pastures’ availability, due to lower rains. In the offseason in southeastern and central-western Brazil and the drought in southern BR, milk production was low. The Milk Production Index (ICAP-L) dropped by 0.2% from April to May on the “Brazil average” and by 12.6% in 2020.

 

Thus, lower production in May increased the competition between dairy plants for milk. That was confirmed by the 6.7% increase in the average monthly price for milk in the spot market (raw milk traded by plants) in Minas Gerais from April to May, in nominal terms.

 

Lower milk supply in May reduced stocks of UHT milk, mozzarella cheese and powdered milk even more, which, it is worth to mention, had been low already, because of the lower production in April – due to the uncertainties related by the covid-19 pandemic. Moreover, agents from the Brazilian market consulted by Cepea reported that the demand for dairy products was firmer in May than in April, favoring price rises.

 

PERSPECTIVES FOR JULY – Milk trades in the spot market and dairy products sales in June will influence the prices o the milk produced in June, which will be paid to farmers in July.

 

In the spot market, prices increased in the two fortnights of June. Cepea surveys show that, on the average of the month, prices in the spot market o Minas Gerais were 45% higher than in May, in nominal terms, reaching 2.28 BRL/liter in June. Cepea surveys also show that UHT and mozzarella cheese inventories were low last month, favoring prices rises between June 1 and 29, by 8.4% and 21.2%. UHT prices averaged 3.19 BRL/liter, 18% higher than in May. For mozzarella cheese, quotes averaged 22.24 BRL per kilo, 22.8% up in the same comparison.

 

(Cepea-Brazil)

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