Cepea, January 4 2019 – The milk prices paid to Brazilian dairy farmers were dropping at the end of 2018 – the downward trend of quotes started in September in all of the regions surveyed by Cepea. The net “Brazil average” in December (related to the milk produced in November) ended the month at 1.2344 BRL per liter, 13 cents of Real down (or 9.4% down) compared to the previous month.
The price drops observed in the field were linked to the devaluation of both the milk sold in the spot market and the UHT milk in November – it is important to stress that the milk traded between dairy plants and the UHT milk quotes influence the prices paid to dairy farmers in the following month. Thus, between the first and the second fortnights of November, the average milk price in the spot market of Minas Gerais State dropped 8.4%. As for the UHT milk traded between dairy plants and in the wholesale market of São Paulo State, quotes decreased 14.8% (or 37 cents of Real) from October to November. The wholesale and retail markets pressed down UHT milk quotes in an attempt to increase the demand for the product in November. Besides, quotes have also been influenced by agents’ speculations.
Agents believe production has increased sharply in Brazil, but the volumes surveyed by Cepea between October and November point to a controlled growth, stability or even reduction in some Brazilian regions. Lower supply, in turn, is linked to the increase in the production costs. In the last months, the quotes of important inputs used in the activity, such as corn and soybean meal, mineral salt, fuel and fertilizers rose sharply.
According to Cepea collaborators, the volume traded in the spot market between November and December was smaller, which pushed up prices in the last fortnight of December. Besides, UHT milk inventories are not high enough, since dairy plants aim to process other products.
The downward trend of the prices paid to dairy farmers should continue in January/19. However, the recent price rises in the spot market and the valuation of the UHT milk should influence the quotes paid to farmers and may constrain price drops, depending on the volume produced.