Prices paid to dairy farmers hit a real record in August/2020

Cepea, September 3, 2020 – The price of the milk produced in July and paid to dairy farmers in August rose by 10.5% between these two months, to 1.9426 BRL per liter on the net “Brazil average”, a new real record in the series of Cepea. The previous record, hit in August/16, was 1.7815 BRL/liter, in real terms (data deflated by the IPCA from July/20).

 

Since early 2020, milk prices have increased by 42.9% on the “Brazil average”, in real terms. Quotes rose more sharply (by 40.1%) between June and August, when the competition between dairy plants for the raw material was higher. This fierce competition, in turn, was linked to the needs of rebuilding inventories of dairy products, when milk supply was low, and demand was still increasing.

 

It is important to mention that the prices paid to dairy farmers usually rise between March and August, due to production seasonality. In this period, milk production is hampered by the low availability of pastures because of the low rains in southeastern and central-western Brazil. However, this year, this scenario was worsened by weather issues, which affected milk production (drought in southern Brazil), higher production costs compared to that in the previous year and the effects of the covid-19 pandemic on the economy.

 

Dairy plants usually try to build inventories before April, predicting production may decrease in the coming months. However, in April this year, perspectives on consumption in the mid and long terms are negative, since the uncertainties linked to the covid-19 pandemic led plants to lower investments in stocks.

 

However, the consumption of dairy production increased in May and the previous months, supported by the payment of the emergency aid in Brazil, which lowered inventories even more. Thus, the prices of dairy production continued to increase in July and the first fortnight of August, primarily for mozzarella cheese, whose average monthly price hit a record in July – in August, a new record should be hit.

 

Low supply and the competition for milk pushed up quotes. In the spot market of Minas Gerais, milk prices rose from 2.24 BRL per liter in the first fortnight of July to 2.75 BRL/liter in the second fortnight of August, a staggering 22.6% up. The monthly average in August, of 2.66 BRL/liter, was 12.2% higher than that in July and 68.1% above that in August/19, in real terms – this is also the highest level in the series of Cepea, which started in July 2004.

 

(Cepea-Brazil)

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