Cepea, April 1st, 2021 – According to Cepea surveys, the price paid to Brazilian dairy farmers in March (related to the milk produced and sold in February) dropped by 2.5% on the net “Brazil average”, to 1.9384 BRL per liter. Thus, the devaluation in the first quarter of the year is at 9.8%, in real terms (prices were deflated by the IPCA from February/21). Still, the average in March is a record for the month and 28.3% higher than that from the same period of 2020.
The decreases in the price paid to diary farmers was linked to the lower demand for dairy products in Brazil, due to the reduction in the purchase power of Brazilian people, the end of the emergency aid paid to many families, the increase in the number of covid-19 cases in the country and high unemployment. With lower consumption, agents from distributors pressured dairy plants for lower prices for dairy products.
Thus, Cepea surveys in partnership sponsored by OCB show that, on the average of February, prices for UHT milk, mozzarella cheese and powdered milk sold in the wholesale market of the Greater São Paulo dropped by 5.5%, 8.4% and 7.6%, respectively, compared to that in the previous month. In the spot market of Minas Gerais, prices dropped by 0.7% on the average of February, influenced by the weak sales performance in the market of dairy products.
Still, it is important to highlight that milk supply is currently low. The Cepea Index for Milk Production (ICAP-L) dropped by 4.5% between January and February, and agents from the sector expect quotes to drop more steeply in the coming months because of the offseason. Moreover, the significant valuation of grains (major components of production costs in dairy farming) has compromised farmers’ profit margins and reduced investments in the activity. Cepea surveys show that, in February, dairy farmers needed, on average, 42.2 liters of milk to purchase a 60-kilo bag of corn, 2.4% up from that in January and 15.7% more than that in the same period last year.
With high production costs, feed management has been hampered, and slaughter is increasing (because of the attractive prices in the beef market). Consequently, milk supply should continue low in the coming months. In this scenario, competition between dairy plants for milk should increasing, pushing up the prices paid to farmers.