Cepea, October 2, 2020 – The price of the milk produced in August and paid to dairy farmers in September rose by 9.7% (18 cents) compared to that in the previous month, hitting 2.1319 BRL/liter on the net “Brazil average”, a new real record in the series of Cepea. Thus, the average milk price in September was 51.4% higher than that in September/2019, in real terms (data were deflated by the IPCA from August/20).
According to Cepea surveys, milk prices have increased by 56.4% this year. This sharp valuation reflects the higher competition between dairy plants for milk, since production has been low. Although quotes have been at high levels, milk production is not increasing as much as the demand for the product, and the Cepea Index for Milk Production (ICAP-L) rose by 3.9% between July and August.
The increase in the price paid to dairy farmers between March and August is seasonal, since milk production decreases in that period because of the lower availability of pastures, due to lower rains in southeastern and central-western Brazil. But, this year, this scenario has been worse.
As regards production, there have been more weather issues this year, such as the drought in southern Brazil, which affected the activity. It is also worth to mention that higher production costs compared to that last year is hampering investments in milk production. Added to that, the unusual decrease in the prices paid to dairy farmers in May (because of the uncertainties caused by the covid-19 pandemic) concerned dairy farmers – many of them reduced investments in the activity. These past actions hampered production, since dairy farming is a daily activity and planning has effects both immediate and in the following months.
Another reason is the significant reduction in the inventories of dairy products, which is linked to the increase in consumption. It is also necessary to highlight that, in the first semester of 2020, the volume of dairy products imported was low, due to the depreciation of Real against other currencies – which contributed to make demand higher than supply and increased the competition between dairy plants for milk.
EXPECTATIONS – According to agents from the market, the upward trend of milk prices should weaken in the coming months – the end of the offseason is near, and weather conditions will become more favorable to milk production. Besides, the industry has been importing higher volumes of dairy products, aiming to reduce the competition for milk in the Brazilian market. As a consequence of the higher availability of milk and by-products, Cepea surveys show that the average milk price in the spot market of Minas Gerais rose by a slight 0.2% in the first fortnight of September, dropping by 5.5% in the second half of the month, closing at 2.61 BRL/liter.
Cepea daily surveys in the first fortnight of September indicated that prices may drop, due to pressure from distributors and purchasers’ firmer stance. In September (until Sept. 29), the prices for mozzarella cheese and UHT milk decreased by 1.5% and 3.3% in São Paulo State. Thus, the price for the milk produced in September and to be paid in October tends to remain stable or drop.