Cepea, May 5, 2020 – Cepea surveys show that the milk price paid to dairy farmers in April (related to the volume produced in March) rose by a slight 0.97% compared to that in the previous month, reaching 1.4515 BRL on the net “Brazil average”.
As the price paid to farmers is fixed after the deals closed in the spot market in the fortnight (milk trades between dairy plants) and sales of dairy products, the prices paid to the farmers in April reflect the scenario in March – therefore, these prices have not been strongly influenced by the coronavirus pandemic yet (which started to step up in Brazil in the second half of March).
Thus, prices remained firm due to the competition between dairy plants for the raw material in March, since milk supply continued low. The Milk Production Index (ICAP-L) dropped again between February and March, by 4.3% on the “Brazil average” – in 2020, the ICAP-L has decreased by 11.5%. Lower production in March was linked to the unfavorable weather to the activity, mainly the drought in southern Brazil. As supply decreased, the price of milk traded in the spot market (between dairy plants) increased in the two halves of March, and the average was 5% higher than that in February and Minas Gerais.
As for the consumption of dairy products in Brazil, the effects of the coronavirus pandemic started to be observed from March 17, when Cepea surveys registered an increase in the demand for the UHT milk. Retailers and wholesalers increased the demand for this by-product, since final consumers aimed to building inventories at home, because of the social distancing advice from local and state governments. With lower supply, the average price for UHT milk decreased by a steep 24.8% in the month. The monthly average in March, at 2.66 BRL per liter, was 11.4% higher than that in February, in real terms (deflated by the IPCA from March/20)
On the other hand, as restaurants and schools closed (or reduced activities), among others, the consumption of chilled dairy products decreased sharply. The daily Cepea survey showed that the average price for the mozzarella cheese traded the dairy plants from São Paulo dropped by 0.97% in March. However, between February and March, the average price rose by 1%, to 19.12 BRL per kilo.
MAY – Difficulties to sell cheese increased milk supply in the spot market in April. At the same time, consumers reduced purchases frequency, and many families had their income lowered, which reduced consumption of several dairy products in April.
Fading deals of by-products in the spot market in April, in turn, point to a bad scenario for the milk produced in April (which will by paid in May). However, it is worth to consider that a decrease in the revenue of farmers while production costs rise – and new the offseason – may increase female slaughter and drive farmers away from the activity. Thus, it is a delicate moment, since decisions need to be made in the short-term, which may bring negative consequences to supply in the mid and long-terms.