Cepea, June 1st, 2021 – The prices paid to Brazilian dairy farmers for milk increased for the second consecutive month in May. According to Cepea surveys, the net “Brazil average” for the milk produced in April (and paid in May) rose by 2.7% compared to that in April, closing at 2.0364 BRL/liter. This is a record for the month and is also 37.9% higher than that in May 2020, in real terms (data deflated by the IPCA from April/21).
Valuations were linked to the decrease in milk supply, due to the dry weather and the increase in production costs. Between March and April, the Cepea Index for Milk Production (ICAP-L) dropped by 1.1%, mostly because of average drop of 2.7% in southeastern Brazil. Since early 2021, the ICAP-L has decreased by 13.2%.
Lower milk production is typical between Fall and Winter in Brazil, since lower rains at this time of the year constrains the availability and quality of pastures, hampering the herds’ feed and consequently the production of milk. As supply is low, prices tend to increase between March and August. However, this year, the drought has been more severe, damaging pastures in important regions of milk production in central-western, southeastern and southern Brazil.
Besides pastures, the lack of rains in lowering the productivity of corn crops and the quality of silage, making the situation more difficult to dairy farmers, who have to deal with feed prices at record levels. Prices for fertilizers have increased too, reflecting the strong dollar.
Despite the milk valuation, Cepea surveys show that farmers profit margins decreased sharply in the last months. From January to April, the amount of milk needed to purchase a 60-kilo bag of corn increased from 42 liters to 47 liters, 13.4% up. From April 2020 to April 2021, the purchase power of Brazilian dairy farmers decreased by 31%. This situation has been constraining investments in the activity, hampering feed management and encouraging the slaughter of cows, since beef prices have been high in Brazil. And the slaughter of cows indicates that milk production may take a long time to increase, despite the price rises, which should reduce supply even more in the coming months.