With lower demand, prices drop in the Brazilian market

Cepea, February 2, 2021 – The price of the milk produced in December/2020 and paid to Brazilian dairy farmers in January/2021 decreased by 4.3%, averaging 2.0344 BRL/liter – net “Brazil average”. Still, the price is 42.6% higher compared to that registered in January 2020 and a new record considering this month.


Distribution channels increased the pressure on the industry, given that the demand decreased significantly in December and January, and this scenario explains price drops. Players surveyed by Cepea say that, due to unstable consumption, the industry has been attempting to adjust the production to keep inventories controlled, in order to limit sharp price drops.


Values of dairy products oscillated significantly in December, and decreases prevailed in January. This scenario is explained by a demand decrease because of a reduction in the purchase power in Brazil – due to the pandemic, the end of emergency aid and a high rate of unemployment. These factors may continue to limit the consumption of dairy products in the next months, which, in turn, tends to lead the industry to reduce prices paid to producers.


Although there is a perspective of price drops in February and March, the average in this first quarter of 2021 is likely to surpass that registered in the same period of 2020, of 1.4655 BRL per liter, in real terms (values were deflated by IPCA December/20).


The Cepea Index for Milk Production (ICAP-L) rose by 1.26% between November and December, pushed up by increases in Santa Catarina (4.6%) and São Paulo (4%). Players say that the production increase, which is typical in this period, has been occurring more gradually because of high production costs.


Therefore, even that milk quotes are at levels considered high for the period, sharp price increases for grains (important items in dairy production costs) have limited producers’ profitability and the growth potential of the activity.





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