El Niño and Inflation Reshape Brazil's Dairy Market in 2026
The Brazilian dairy market is experiencing significant challenges as it enters the second half of 2026, driven by a combination of climate and economic factors. According to data monitored by MilkPoint Mercado, the net income per cow per day, after deducting feed costs, increased from R$ 23.30 in January to R$ 36.40 in May. This reflects a steady recovery in activity during the first half of the year, although it remains dependent on a constrained supply environment.
Rabobank's analysis points to a sensitive shift in demand trajectory for the latter half of the year. Despite an anticipated growth of the Brazilian economy by 1.8% in 2026 and a relatively strong job market, accelerated inflation poses a significant limitation on dairy consumption. Rising energy and food prices have diminished household purchasing power, applying additional pressure on the Brazilian milk market.
Household debt levels remain high, continuing to restrict retail sales expansion. These factors suggest a less responsive demand, even within a positive macroeconomic environment in terms of activity. On the supply side, climate risks have gained prominence with the forecast of a strong El Niño event by the end of the third quarter of 2026. This climate phenomenon could result in excessive rainfall in the Southern region, affecting major dairy areas like Rio Grande do Sul and Santa Catarina, while drier conditions in the Southeast and Northeast could impact pasture availability, further straining the milk market.
Imports are expected to play a crucial balancing role. Rabobank projects that they will remain elevated in the second half of the year, despite the restricted domestic supply. The combination of stable international prices, a relatively strong real, and higher domestic prices maintains the competitiveness of external purchases, increasing competition for the local industry.
Additionally, changes in consumption patterns are being observed in Brazil's dairy market. There is a growing demand for high-protein dairy beverages, a segment expected to see new product launches throughout the second half of the year. This trend indicates a shift in the industry's portfolio towards higher value-added products.
On the production front, the report highlights disparities in performance among producers. Those with production levels exceeding 10,000 liters per day continue to expand investments and achieve higher average prices, reinforcing a process of greater professionalization and efficiency concentration within the sector.
Rabobank's overall assessment suggests a delicate balance for the second half of 2026. While limited production growth supports producer prices, the combination of inflation, household debt, high import levels, and climate risks associated with El Niño creates a more volatile environment for the Brazilian milk market.
