Brazil's Dairy Demand Faces a Chilling Forecast

Brazil has shown a robust increase in milk production, with an annual growth rate of about 9.3% in the first half of 2025. Favorable weather conditions and reduced input costs, such as soy and corn, have driven this increase, particularly benefiting large dairy farms. However, the Brazilian real has appreciated approximately 12% against the dollar since January, making dairy imports cheaper. This includes regular imports of whole milk powder, cheese, and skimmed milk from Mercosur.

Despite strong internal demand maintaining partial price support, milk prices have started to decline, with July's average value being BRL 2.65 per liter, lower than in April. The labor market remains robust, with unemployment below 7%, but the decelerating growth of real income poses a risk to domestic dairy consumption if prices rise. RaboResearch forecasts a total production increase of around 6.5% for 2025, with the second half of the year seeing slightly lower growth (≈ 6.2%) due to a high base effect. This cautious demand could lead to weaker prices by the year's end.