Embrapa expects a complex scenario for milk in the coming months |  Agromedia

Embrapa expects a complex scenario for milk in the coming months | Agromedia

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The scenario of the milk market for the coming months is complex, warns the Milk Information Center (CILeite), in Embrapa Gado de Leite, in a conditions note released on Monday (15). According to CILeite, the trend is lower prices for raw materials. This could hamper the activity of producers, whose margins remain tight due to higher production costs, which rose by 18.1% from January to July of this year compared to the same period in 2021.

“We continue with a market with little supply and still off-season in the Southeast and Midwest. But there is a price adjustment with a downward trend. The harvest approach, growth in the volume of milk supplied in the southern region of Brazil, increased imports and weak demand, says the note. Domestic on dairy products are the foundations of the current scenario.

Also according to CILeite, costs remain high. “If there are more severe declines in producer prices in the coming months, a new supply imbalance could occur in 2023, after a highly volatile market and difficult risk management.”

Read below the full statement of Selett’s position in the dairy market for the coming months, by Glauco Carvalho, Alziro Carneiro, Jose Bellini, Lordo Stock, Manuela Lana, Marcos Hutt, Paolo Martins, Ricardo Andrade, Samuel Magalhaes, Walter Magalhaes, and researchers and analysts at Embrapa Gado de Leite:

Milk and Derivatives Market Note – August 2022

“In recent months, the price of dairy products for consumers has been the subject of many media channels in all regions of Brazil. In the latest IBGE edition, referring to inflation in July, UHT milk registered an increase of 25.5% for the consumer. The group of milk and its derivatives presented a 14% increase, While official inflation declined by 0.68%.The reason for this increase in dairy products is the imbalance between supply and demand, as milk production decreased by 9% in the first half of 2022 compared to the same half of last year, due to increased costs and lower margins.The period was The most complex in terms of profitability are the second half of 2021 and early 2022. With so little milk in this area, there was strong competition among dairy products in purchasing the product, which led to a rise in the price of the raw material. This was also the moment to impose Transfers to the wholesale market, taking advantage of the moment of scarcity to restore margins.The months from May 2022 to August 2022 were better for profitability in the sector.

However, the level of uncertainty and concern about prices is gaining strength in recent days. In the international market, the economic growth scenario worsened. Recession risks have increased in the United States, the outlook for European growth is worse, and China is showing signs of slowing growth. Large hedge funds reduce their exposure to commodities, which contributes to lower prices whether it is mineral, energy or agricultural. Corn prices fell from $8 a bushel to about $6 a bushel in the US market between May and August. Dairy products also fell in recent GDT platform auctions, with whole milk powder priced at $3,544 per ton on August 2, the lowest price since August 17, 2021.

In the domestic market, in terms of production costs, the news is positive. With regard to the trend of prices and imports, the scenario is more complex.

Production cost, as measured by ICPLite/Emrapa, fell for the third month in a row. In 2022, the increase was only 1.28%. However, comparing the average from January to July 2022 with the same period in 2021, an increase of 18.1% was reached. In other words, in the annual comparison, costs are still higher, despite the recent slowdown. In recent months, lower prices for concentrates, fertilizers and fuels have reduced the pressure on the cost of milk production.

In the wholesale dairy market, price behavior declined in early August. UHT milk in bulk Sao Paulo recorded a 13% decrease in the first 10 days of August, while mozzarella cheese fell by about 10%, according to Cepea. The drop in UHT was 70 cents per liter and in mozzarella 3 riyals per kilo. In the spot market, there was also a decline, because at the moment of approaching the harvest, dairy products tend to give preference to milk from their suppliers.

Finally, in the case of Trade Balance, we had the month of July with increased imports, which was the highest monthly volume of the year. On the other hand, exports ended with the lowest monthly volume during the year. The relative change in the price between the product in Brazil and the international price of dairy products made imports more competitive.

Anyway, we continue to operate with a market with little supply and still off-season in the Southeast and Midwest. But there is a price adjustment with a downtrend. The harvest approach, the growth in the volume of milk supplied in the southern region of Brazil, the increase in imports and the weak domestic demand for dairy products are the foundations of the current scenario. It should be noted that costs remain high, and if there are more steep declines in producer prices in the coming months, a new supply imbalance could occur in 2023, with continued high market volatility and difficulty managing risks.

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