Cepea, January 7, 2020 – The milk price paid to Brazilian dairy farmers in December (regarding the volume produced in November) was 1.3535 BRL/liter on the net “Brazil average”, only 0.3% up compared to that paid in the previous month and moving up 6.3% in relation to December/18. Quotes usually move down sharply at the end of the year, scenario that was not registered in 2019, because production did not increase as expected. According to Cepea data, the Milk Production Index (ICAP-L) rose a slight 2.25% between October and November.
2019 was atypical for the sector. Prices were sustained by the limited supply and the increase in the competition among dairy companies, in spite of the reduced consumption. As a result, values paid to producers did not follow the seasonal trend. Between July and August (off-season peak), quotes decreased because of the low consumption and reduced margins of the industry. In the last quarter of the year (season beginning), the delay of rains in the Southeast and in the Central-West limited the production recovery and quotes were stable.
In 2019, prices upped 6.3% in real terms. The annual average, deflated by IPCA November/19, was 1.4219 BRL per liter, 6.5% up compared to the average in 2018.
PRODUCTION IN 2019 – In the first semester, the volume of rains was irregular and, in spring, the delay of rains limited the production recovery. Moreover, the fact that many producers have left the activity over the last years and uncertainties to invest in the long-term reinforced the limited supply. In this scenario, it is likely that total production in 2019 is stable compared to that registered in 2018. On the other hand, the formal production may increase.
PERSPECTIVES – The price increase for grains at the end of 2019 may reduce the sector’s growth potential. In addition, attractive quotes in the fed cattle market have encouraged the slaughter of cows. Players surveyed by Cepea say that the volume produced in December is likely to be stable compared to November, which can underpin values in January. Production in the South tends to decrease from December to February, helping quotes to continue firm in early 2020.