Three Factors May Pressure Brazilian Milk Producers in Coming Months
The international market has provided less support to milk prices. A quotation that stood at approximately US$3,800 per tonne in March declined to around US$3,500. The source analysis links the market to subdued demand abroad.
Brazil is also receiving more dairy products from overseas. Imports surpassed 200m litres in milk equivalent between March and July. A stronger Brazilian real and the competitiveness of Argentine products supported the increase.
The difference in payments to farmers illustrates the domestic pressure. In June, Brazilian producers received the equivalent of US$0.536 per litre, compared with US$0.358 per litre in Argentina. The combination of favourable exchange rates for imports and competitive Argentine products has increased attention on the Brazilian market while demand remains insufficiently strong to remove pressure on quotations.
Domestic conditions have nevertheless supported prices paid to producers during the first eight months of the year. Cheese makers competed for raw milk, while the UHT segment recovered. These two developments kept market conditions better than initially expected.
The approach of the seasonal supply period introduces another factor. Higher seasonal production, substantial imports and limited demand are identified in the analysis as conditions that could put further pressure on quotations and producers’ margins. The analysis says the issue extends beyond the price received per litre to the management of costs and cash flow if profitability declines.
Production costs are subject to separate uncertainties. Embrapa has highlighted possible effects from the conflict between the United States and Iran on oil, freight, fertilisers and packaging. In Brazil, the possible occurrence of a very severe El Niño could affect the next grain harvest and raise the cost of animal feed.
The analysis recommends negotiating key inputs in advance and strengthening cash-flow management. It says domestic factors continue to support the market, but the approaching seasonal supply period, imports and limited demand could change that balance in the coming months.
