According to CEPEA, the price of milk paid to the producer in January was R $ 1.37 / liter in the "Average Brazil". This represents the highest real price in the CEPEA historical series, up 1.1% from the previous month and 2.2% compared to January 2019.

Cepea is the economic research center at Esalq (“Luiz de Queiroz” College of Agriculture), USP (University of São Paulo), in Piracicaba. The Center develops research regarding economic, financial, social and environmental aspects of about 30 agribusiness supply chains. Cepea aims to contribute for a more efficient and sustainable management of agribusiness, providing, at the same time, scientific information and analyses  for policymakers focused on the development of the sector and, as a result, of Brazil.

The organization also points out that the increase is due to an atypical factor for the period: competition between dairy products to guarantee the purchase of raw materials in the field in a context of limited supply. The factor is atypical because this period is usually characterized by an increase in production pulled by the Southeast and Midwest and stability in capturing the South of the country, which did not occur at the end of last year. The restricted supply, therefore, caused the price curve to deviate from the seasonal pattern.

The CEPEA survey found that the Milk Capture Index (ICAP-L) fell by 1.2% from November to December in the “Average Brazil”. The result is linked to the fall of 7.3% in RS, 1.4% in MG and 0.5% in GO.

The slow recovery of production in the spring, due to the delay in the rains, sustained prices at high levels as it limited the growth of supply in the Southeast and Midwest. In the south of Brazil, on the other hand, the lower rainfall volumes caused a greater than expected decrease in production. In the Rio Grande Sul dairy activity, the drought and high temperatures caused negative impacts, due to the increase in the caloric stress faced by the animals and the decrease in food for the herd.

Still, it is noteworthy that the increase in production costs and the slaughter of dairy cows, stimulated by high prices in the beef cattle market, also hampered milk production in the last quarter of 2019.

The difficulty in recovering milk production in the Southeast and Midwest in full harvest and the increase in production costs are worries for agents in the sector. Derivatives stocks remain lean, which stimulated a 5% increase in the price of spot milk in MG in January. The partial average in January (until the 28th) of mozzarella traded in the São Paulo wholesale market rose 2.5%, while that of UHT fell 1.5%, due to pressure from distribution channels. Thus, the expectation is that milk prices in the field will remain firm in the first quarter of 2020.

Source: CEPEA