Uncertainties in the Brazilian market of dairy by-products in April press down quotes in May

Cepea, June 2, 2020 – After having increased sharply from December 2019 to April 2020, milk prices paid to Brazilian dairy farmers dropped in May. According to data from Cepea, the net “Brazil average” in May (related to the milk produced in April) closed at 1.3783 BRL per liter, 5% lower than that in the previous month and 11.2% down compared to that from May/19 (in real terms, with values deflated by the IPCA from April/20). Price drops were linked to the uncertainties in the Brazilian market of dairy products in April, caused by the coronavirus pandemic.


According to Cepea’s daily survey, UHT milk prices decreased by 17.8% in April. Still, the monthly average, at 2.87 BRL/liter, was 8.41% higher than that in March.


The market of mozzarella cheese was affected by the current uncertainties too, with lower demand and volume traded. Quotes decreased by 8.3% in April, and the monthly average closed at 17.93 BRL per kilo, 5.97% down compared to that in March. Sales difficulties reduced mozzarella cheese production is April, which increased raw milk supply in the spot market (trades between processors) in April. In Minas Gerais, the average price for raw milk dropped by 7.3% in the first fortnight of April and by 11.7% in the second half of the month.


On the other hand, it is currently the offseason for dairy farming in southeastern and central-western Brazil. The Milk Production Index (ICAP-L) dropped by 0.6% from March to April on the “Brazil average” and by 12.4% in 2020.


Usually, in this scenario, dairy plants would make an effort to replenish inventories. However, negative perspectives for consumption in the mid and long terms increased uncertainties in April, reducing plants’ investments in inventories and pressing down quotes in May.


JUNE – As the prices paid to dairy farmers are calculated after a fortnight of deals in the spot market (raw milk trades between plants) and dairy products sales, in June, milk prices will reflect the by-products market in May. Milk production decreased in May. As a consequence, Cepea surveys show that the monthly price average for the milk traded in the spot market of Minas Gerais in May was 6.7% higher than that in April, in nominal terms. Lower supply in May and by-products production in April reduced inventories of UHT milk and mozzarella cheese in May, favoring price rises.


Between May 4 and 27, UHT milk prices rose by 14.4% and mozzarella quotes, by 15.7%. Still, the monthly averages, at 2.68 BRL/liter and 17.90 BRL/kg, respectively, are 6.62% and 0.1% lower than that in April.





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