Cepea, October 1 2019 – After decreasing 12.1% in July and in August, the milk prices paid to Brazilian dairy farmers increased in September. According to Cepea surveys, the prices paid in September (for the milk produced in August) averaged 1.3728 BRL/liter on the net “Brazil average”, 1.94% (or 3 cents) up compared to that from August and 9.5% higher than that from Sept/18, in real terms (IPCA from August/19). The “Brazil average” considers the states of BA, GO, MG, SP, PR, SC and RS, with zero freight and taxes.
This atypical scenario was linked to both the low milk supply in the field – since production in August did not increase as expected by agents from the sector – and the fierce competition for milk between dairy plants.
In southeastern and central-western Brazil, the dry weather damaged pastures, limiting milk production. In the southern region, on the other hand, favorable conditions increased production in August, by 10.9% in Rio Grande do Sul, 11% in Santa Catarina and 7.5% in Paraná. Thus, the Milk Production Index (ICAP-L) increased 7.7% between July and August/19. Despite the production increase, the volume has not been enough to meet the domestic demand, increasing the dispute for milk between dairy plants.
Lower milk supply pushed up quotes for dairy by-products. In the wholesale market of São Paulo, the average price paid for the UHT milk in August, at 2.53 BRL per liter, was 7.3% higher than that from July/19. However, in September, the scenario changed and the monthly average (until Sept. 26) decreased 2%, to 2.48 BRL per liter. According to Cepea collaborators, dairy plants reduced milk production and, now, have been operating with inventories between average and low, aiming to avoid extra expenses, once wholesalers are trying to lower quotes.
It is important to mention that milk prices are influenced by the spot and the by-products market, and there is a one-month delay in the trend. Therefore, the prices paid to growers in October should be influenced by the performance of the by-products and spot markets in September, when quotes dropped in the first fortnight, due to expectations for a production increase after the return of rains to southeastern and central-western Brazil. Thus, the price rises in September may have been atypical and occasional.