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Prices paid to dairy farmers rise 2 cents of Real in May

 
Cepea, June 4 2019 – The milk prices paid to Brazilian dairy farmers rose for the fifth consecutive month in May, reaching 1.5175 BRL per liter on the net “Brazil average”, 2 cents of Real (or 1.7%) up compared to that from April, according to Cepea surveys. The average price in May was 15.6% higher than that in May/18, in real terms (values were deflated by the IPCA from April/19). Since early 2019, quotes paid to farmers have increased 20.4%.

 

It is important to mention that, along the year, milk prices in the field have reached the highest levels in all Cepea series for the respective months (January to May). The average price in the first five months of 2019 is 25.3% higher than that from the same period last year, in real terms. The sharp rise in the milk prices paid to dairy farmers is linked to the low supply in the field as well as the higher competition between processing plants – to ensure the acquisition of raw material. The Milk Production Index (ICAP-L) decreased 0.7% in Brazil, on average, from March to April, and a steep 9.8% since the beginning of the year.

 

This is the time for dairy farmers to have higher profit margins. According to Cepea surveys, the Effective Operational Cost (EOC), which considers the current expenses of dairy farms, increased only 0.57% on the average of the biggest milk-producing states from January to April, much less than that observed for the revenue.

 

However, agents from dairy plants claim difficulties to pass on the price rises of raw material to by-products and, consequently, consumers. The average prices for the UHT milk and mozzarella cheese between January and May 2019 are 7.5% and 9.8% higher than that in the same period last year, in real terms. Since early in the year, the average price for the mozzarella cheese traded between dairy plants and the wholesale market of São Paulo State has increased a slight 3% - still, it has reached much higher levels than in previous years. On the other hand, UHT milk quotes have increased a staggering 20.8% this year, but the price levels continue similar to that from 2018.

 

In the current scenario, there is a fierce competition between dairy plants regarding by-products sales, besides the pressure from distributors to lower dairy products quotes. With tight margins, processing plants should increase pressure on the productive segment in the coming months.

 

(Cepea-Brazil)

 

 

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