Quotes resume dropping in the Brazilian market

Cepea, November 4, 2019 – After reacting in September, milk prices in the field resumed decreasing in October. According to Cepea surveys, the price paid to dairy farmers in October, related to the milk produced in September, was at 1.3635 BRL per liter on the net “Brazil average”, a slight 0.68% down compared to that in the previous month, but a steep 7.6% down compared to that from October/18, in real terms (values were deflated by the IPCA from September/19).

 

In general, the milk prices paid to farmers follow a seasonal trend starting September, due to the production increase in southern Brazil and the return of rains in southeastern and central-western regions. However, in 2019, price behavior has been atypical for the period, due to the current slow production pace – which, is turn, is also linked to the delay of rains in southeastern and central-western BR, but also to farmers’ uncertainties about mid and long-term investments.

 

From August to September, the Milk Production Index (ICAP-L) increased 2.9%, frustrating the initial expectations for a higher rise in that month. Thus, milk prices in the spot market (wholesale market) dropped and agents from dairy plants reduced the prices for dairy by-products. In Minas Gerais, quotes in the spot market decreased 6.3% between August and September, to 1.4433 BRL per liter. Prices for the UHT milk and the mozzarella cheese traded in the wholesale market of SP dropped 2.4% and 3.6%, respectively.

 

Despite the price drops for milk by-products as well as for milk in the spot market in September, agents from dairy plants did not manage to press down quotes in the field, due to the fierce competition for raw-material, since inventories were tight in September.

 

It is important to mention that milk prices in the field are influenced by both the spot and the by-products markets, with a one-month delay for the trend to be passed on.

 

In October, quotes dropped 1.7% in the spot market of Minas Gerais, reaching 1.4306 BRL per liter. For the UHT milk traded in the wholesale market, on the other hand, prices oscillated during the month, closing the period 0.75% higher than that from September 30, averaging 2.39 BRL per liter – 3.5% down compared to the average price from September.

 

Agents consulted by Cepea have reported difficulties to trade with wholesalers, who are trying to press down quotes in order to attract consumers. On the other hand, prices for the mozzarella cheese traded in the wholesale market of São Paulo State increased 4.56% between September 30 and October 31, averaging 17.10 BRL per kilo in the month, 0.9% up compared to the average from September. Mozzarella cheese inventories were lower in October. Late in the month, however, Cepea collaborators reported increases, due to the higher milk production.

 

Considering rains will return in October, milk production may be favored and prices may drop in November – however, devaluations will depend on the production increase.

 

(Cepea-Brazil)

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