Cepea, September 3 2019 – The milk prices paid to Brazilian dairy farmers have dropped for the second consecutive month in August. According to Cepea surveys, the net “Brazil average” in August, related to the milk produced in July, closed at 1.3466 BRL per liter, 4.25% down (almost 6 cents per liter) compared to that in the previous month, in real terms – values were deflated by the IPCA from July/19. Milk prices started to decrease in the field in July, and in the last two months, quotes have already dropped 12%, in real terms.
This scenario is linked to the pressure from dairy plants, whose profit margins decreased in the first semester of 2019, due to the high price levels paid for the raw material as well as the slow trading pace in the dairy market. While milk prices in the field had been increasing until June, due to low supply and the competition between dairy plants, it was difficulty for them to raise by-products quotes, due to the economic scenario in Brazil and the consequent weakened consumption.
So far, the scenario has been similar to that in 2017, with high price levels in the first semester, due to low milk supply, and a steep decrease in the second half of the year, after the milk volume bounced back (crop from southern Brazil). However, the difference between 2017 and 2019 may be the production pace. As many dairy farmers left the market in the last years, uncertainties about long-term investments – due to the scenario in the short-term – should hamper production this year. Besides, the crop in southern Brazil was smaller this year, since unfavorable weather damaged winter forage.
Thus, the agents surveyed by Cepea claim that supply remained low in August. Competition has been high among dairy plants, which need to purchase raw material and keep their shares in the market. This scenario pushed up prices in both the first and second fortnights of August. In Minas Gerais, where the largest volume is traded in the spot market, the average price in August (1.55 BRL per liter) was 16% higher than that in July, in real terms. This scenario may limit the downward trend of quotes in September or even stabilize prices.