Cepea, August 3, 2020 – The prices paid to Brazilian dairy farmers in July, related to the milk produced in June, closed at 1.7573 BRL per liter on the net “Brazil average” from Cepea, a staggering 16.1% up compared to that in the previous month and 25% higher than that in the same period last year (the series was deflated by the IPCA from June/2020). This is the highest price level for a month of July and the second highest in all Cepea series, which started in 2004, only after the average in August/2016 (1.7751 BRL/liter).
Price rises are linked the higher competition for milk between dairy plants in June. The fierce competition, in turn, was linked to the needs of replenish inventories of dairy products. Plants are usually focused on replenishing inventories before April. However, this year, the negative consumption perspectives for the mid and long-terms (because of the covid-19 pandemic) made agents concerned in April, leading them to reduce investments on inventories.
As consumption has increased, sales of dairy products increased between May and June, lowering inventories even more. In this scenario, prices for dairy products increased in June: by 17.7% for UHT milk, 23% for mozzarella cheese, and 10.9% for powdered milk. Low milk supply in June boosted milk prices in the spot market. In June, quotes in the spot market of Minas Gerais were 45% higher than that in May, in nominal terms, averaging 2.28 BRL per liter.
It is worth to mention that prices usually rise between March and August, due to seasonality. In this period, milk production is usually lower, since pastures are not in good conditions because of the drier period in southeastern and central-wester Brazil. However, the Milk Production Index (ICAP-L) rose by 4.5% from May to June on the “Brazil average”, influenced by the production increases in Rio Grande do Sul (10%), Santa Catarina (7%) and Paraná (7.4%).
PRODUCTION COSTS ON THE RISE – It is worth to mention that, compared to 2019, production costs have been higher this year. Cepea surveys show that, with the corn price drops in June, the purchase power of Brazilian dairy farmers against this input increased: 35.2 liters of milk were worth a 60-kilo bag of corn. However, in June 2019, 24.9 liters of milk were worth a bag of corn. Thus, farmers’ purchase power has decreased by almost 30% in the annual comparison.