Cepea, March 2, 2021 – The prices paid to dairy farmers in Brazil decreased in February for the second consecutive month – in the first two months of 2021, quotes decreased by 6.7%. According to Cepea surveys, the price of the milk produced in January and paid to farmers in February dropped by 2.2% on the net “Brazil average”, to 1.9889 BRL per liter. This was the first time in six months that milk prices were lower than 2.00 BRL/liter. Still, quotes are 34.5% higher than that in the same period of 2020, in real terms, a new record for the month of February (considering the inflation, IPCA from Jan/21).
Milk devaluations were linked to the decrease in the demand for dairy products because of the lower purchase power of Brazilian consumers, the end of the emergency aid paid by the federal government, the increase in the number of cases of covid-19 and higher unemployment in the country.
Cepea collaborators reported that, with unstable consumption, dairy plants trying to adjust production and keep inventories controlled, aiming to avoid steeper price drops for both milk and its by-products. However, inventories are growing, and, since December 2020, agents from distributors are trying to pay lower prices for dairy products.
The bad sales performance in January influenced the price paid to dairy farmers for the milk produced in that month. Cepea surveys show that, on the average of January, prices for UHT milk and mozzarella cheese dropped by 6.8% and 8.9%, respectively, in the wholesale market of São Paulo State, while quotes for powdered milk remained stable. In the spot market of Minas Gerais, quotes decreased by 12.3% on the average of January.
In February, prices for dairy products continued to drop, reinforcing the downward trend of prices paid to farmers in March. Up to February 25, quotes for UHT milk had decreased by 5.4%; mozzarella cheese, by 8.1%; and powdered milk, by 7.2% - São Paulo State. In the spot market of MG, the monthly average dropped by 0.7% between January and February.
SUPPLY – Cepea surveys indicate that, in January, milk purchases by dairy plants decreased by. 4.5% compared to that in the previous month, according to the Cepea Index for Milk Production (ICAP-L), due to the 6.5% decrease in the volume purchased from the states in southern Brazil. Agents from the sector expect supply to decrease even more in the coming months, to the beginning of the offseason. Besides, milk production should be affected by the lower quality and volume of silage in early 2021, due to the bad weather conditions in the last quarter of 2020. Moreover, the valuation of grains (major inputs consumed in dairy farming) has been compromising farmers’ profit margins, hampering production.
Cepea surveys show that, in January, Brazilian dairy farmers needed 41.2 liters of milk to purchase a 60-kilo bag of corn, on average, 16.3% more than in December. Thus, it is worth to mention that, although milk prices are currently at high levels for this time of the year, farmers’ profit margins are dropping, discouraging investments in the activity.