Cepea, May 3, 2021 – After having dropped by 10.7% in the first quarter of the year, in real terms (values were deflated by the IPCA from March/21), the price for the milk produced in March and paid to dairy farmers in April rose by 2.3% on the net “Brazil average”, to 1.9837 BRL/liter. This price level is a record for a month of April and is also 28.4% higher than that in the same period of 2020.
According to Cepea surveys, this trend reversal is linked to low milk supply. The Cepea Index for Milk Production (ICAP-L) dropped by 3.7% between February and March and by 8.8% in the first quarter of the year.
Rainfall usually decreases from March onwards in Brazil, reducing the availability of pastures and hampering milk production in the southeastern and central-western regions of the country. Thus, the offseason of milk production unbalances supply and demand, pushing up prices between March and August.
However, this year, the scenario has been worsened by the significant valuation of grains, which have the highest share in the production costs of dairy farming. Cepea surveys show that the profit margins of dairy farmers decreased steeply in the last months, constraining new investments in the activity, hampering feed and encouraging cow slaughter.
With low milk supply, the competition of dairy plants for the raw material increased in March, pushing up the prices paid to dairy farmers in April. Milk sales in the spot market increased in March, when the monthly average was 10.4% higher than that in February.
In this context, dairy plants are trying to pass on higher milk prices to dairy products. Cepea surveys in partnership with OCB show that the monthly averages for UHT milk and powdered milk in the wholesale market of São Paulo rose by 7.5% and 7.6%, respectively, between February and March. As regards mozzarella cheese, prices rose more sharply from the second fortnight of March onwards, and the monthly average dropped by 5% in the same comparison (data deflated by the IPCA from March/21).