The hardship for the sector at the end of the year is to equalize demand, sensitive to the high dairy price levels, with the supply that must follow as restricted as it goes, since the occurrence of La Niña should negatively impact dairy activity in the upcoming months.
In addition, the expressive high production costs (mainly linked to the appreciation of grains) make investments in the activity impossible, as it compresses the producers' margins. Another aggravating factor for the situation is the appreciation of the 'arroba' prices throughout this year, which ends up encouraging the slaughter of females. Thus, milk production may not recover in the summer, as in other years, of which it can slows down milk output in the Q1-21.
It is important to remember that milk prices in the countryside are influenced by the spot and derivatives markets, with a delay of one month in this trend transfer. Thus, the price of milk collected in October that is paid in November is influenced by the performance of the derivatives and spot markets in October. Due to the seasonality of production, it was expected that from October, milk would devalue in the field, since the spring and summer rains increase the availability of pasture. However, in 2020, the resumption of production has not occurred intensely, since the climatic conditions were less favorable. In addition, the increase in production costs affects the activity. Even so, in the first and second half of October, there was a greater supply of spot milk (negotiated between industries) in Minas Gerais, so that the monthly average fell 16.8% compared to September / 20, going to R$ 2, 23 / liter.
The reduction in price quotations in the field was more linked to pressure from distribution channels on the dairy negotiations with industries in October. This is because consumption was weakened in that same month, due to the high levels of prices reached by derivatives in previous months. As a consequence, in October, there was a decrease in the average prices of derivatives important for the producer pricing formula, such as long life milk (UHT), mozzarella and powdered milk. It is important to highlight that, even with lean stocks of dairy products, the intense appreciation of various foodstuffs in recent months has weighed on the Brazilian consumption decision, which also results in greater competition between retail chains to attract customers with low prices.
Milk price in the field fell in November, thus interrupting the upward movement that had been seen since June. According to a survey by the Center for Advanced Studies in Applied Economics the net “Average Brazil” of milk collected in October and received by producers in November fell to R$ 2.0434 / liter, a decline of 5.3% (or 11 cents / liter) compared to the previous month.