Markets Processing Weather

Why Are Brazilian Milk Prices at a Four Year Low?

BRAZIL – Brazil’s low milk prices are the result of a milk production increase after investors were buoyed by high 2013 milk prices, say economists.

9 January 2015

2 minute read

South America

Widespread investment on Brazilian dairy farms two years ago is partly to blame for tough times now, according to analysts at the Centre for Advanced Studies on Applied Economics (CEPEA).

This contrasts greatly with the fortunes of beef prices, which have skyrocketed in the face of a drought and growing Russian and Chinese demand.

Meanwhile, CEPEA analysts state that a rise in domestic dairy demand has not been sufficient to absorb supplies and counter tumbling milk prices.

Prices were pushed down in December, 4.5 per cent lower on November and 10 per cent lower year-on-year after a relatively stable summer.

But this is not expected to last for long, says Rabobank.

High supplies will be addressed over the next 12 months, with Rabobank analysts predicting production growth to slow to little over one per cent for 2015 and demand to be up 3.5 per cent.

Brazil’s export surplus will therefore “dry up”, creating opportunity for import growth.

Milk buying is higher in all states in the Centre for Advanced Studies on Applied Economics (CEPEA) survey.

December’s national “Brazil-average” closed at 0.98 reals per litre, according to CEPEA statistics.

Parana and Goias have been the hardest hit, losing six per cent. In the south, Santa Catarina’s average price fell 5.4 per cent.

A CEPEA spokesperson said: “Over the last months of 2014, despite rains being delayed, precipitation favoured pasture quality in dairy regions. Consequently, milk purchases increased significantly.”

“In terms of by-products, values also dropped, mainly because of high stocks.

“Mozzarella and UHT were down 2.2 and 5.2 per cent to end the year, compared to November.”