Brazil. Dairy and Products Annual Oct. 28, 2016

Highlights

Post forecasts milk production to decrease by 8 percent in CY 2016 caused by the severe drought faced by the country in 2015/2016. In addition, the dairy industry decided to reduce investments because of the risk due to the lack of the water supply. This scenario resulted in lower domestic milk production, which affected retail prices and milk availability in the market. Lower domestic milk supply forced the country to increase dairy imports. From January to September 2016, purchases of dairy products in general including dairy ingredients from abroad, reached 201,507 MT, nearly 74 percent above from the same period in 2015.

Commodities

Dairy, Milk, Fluid

Production

In 2015/2016, Brazil had one of the most severe droughts since 1930, causing serious impacts in large areas of Brazil's southeastern region, in particular the states of São Paulo, Rio de Janeiro, and Minas Gerais. Minas Gerais is the main milk producing state in Brazil, accounting for 26 percent of total milk production. The severe dryness had a negative impact on dairy production due to issues with pasture for animals but also in the production operations, specifically cleaning of the silos and maintenance of production lines. The dairy industry decided to reduce investments because of the risk due to the lack of the water supply. This scenario resulted in lower domestic milk production, which affected retail prices and milk availability in the market.

Post estimates milk production under inspection of governmental official to reach 24.8 million metric tons (MMT) in CY 2015 and 22.7 MMT in CY2016. Post also forecasts that milk production will recover and reach 24.2 MMT in CY 2017.

Trade

Brazil imports and exports insignificant volumes of fluid milk. Typically packaged UHT milk imports are sold by companies from Argentina and Uruguay with commercial interests in Brazil.

The average fluid milk prices in CY 2016 have increased almost 50 percent compared to the same period in the previous year. There are several factors causing this situation: the weakening Brazilian real, the correlation of domestic and international prices, increase of feed meal prices, and high inflation.

Fluid Milk Acquisition

The Brazilian dairy sector experienced further consolations in the recent years. The fifteen largest dairy companies were responsible for the acquisition of 9.857 billion liters of milk in 2015. As mentioned, the milk shortage led those companies to rethink their investments and postpone plans for expansions.

Stocks

Current milk and dairy product stocks held by major dairy companies are considered operating stocks to meet short term demand. There are no government held stocks of milk or milk products in Brazil.

Production, Supply and Demand Data Statistics

Commodities

Dairy, Cheese

Production

Post forecasts cheese production in CY 2016 to decrease to 745 MT, the cause is mainly the milk shortage in the market and an estimated small growth in the fast-food sector. The forecast for cheese production in CY 2017 is to reach 772 MT. This slightly increase is boosted mostly for exports to Russia.

Trade

Imports

Cheese imports in CY2016 are projected to increase by 92 percent, as a result of reduced fluid milk suppliers. For CY 2017, Post forecasts a slight decrease in imports due to the higher value of the Brazilian real and a continued drop in consumer income. Cheese manufacturers will try to recover the production volume from previous years.

Imports from Uruguay and Argentina increased significant amounts compared to other countries. The main reasons for this scenario, is that due the milk shortage, Brazil searched for low cost cheeses produced in these two countries. Imported cheese from these countries included mainly parmesan and "prato" cheese ( yellow cheese), used in the food service sector.

Exports

Cheese exports in CY 2016 reached 2.6 MT and Post forecasts that cheese exports will increase by 2 percent in CY 2017 to 2.7 MT. Brazil is not a strong cheese exporter, but companies are trying to improve in terms of machineries and will target exports to Russia in CY 2017. Recently Russia opened the cheese, milk powder and butter market to Brazil by registering some dairy plants to export to that country. This will explain the increase in cheese production and in the exports in CY 2017.

Stocks

There are no official government stocks of cheese in Brazil.

Commodities

Dairy, Butter

Production

Butter production is projected to decrease by 1 percent in CY 2016, reflecting the milk shortage crisis.

Trade

Export volumes for this product are insignificant in CY2016. Brazil mainly produces butter for its own consumption and occasionally, depending on market conditions exports low volumes. Russia opened the market for Brazil in September 2015 for dairy products: milk powder, cheese and butter. Post forecasts a slight increase in butter exports in CY 2017, mainly to Russia, but the volumes are small compared to other commodities

Due the milk shortage crisis, Brazil imported butter for industrial and retail purposes. Imports reached 5,016 MT, an increase of almost 200 percent in CY 2016.

Production, Supply and Demand Data Statistics

Commodities

Dairy, Dry Whole Milk Powder and Nonfat Dry

Production

Post forecasts whole milk powder (WMP) production to decrease by 9 percent to 550 MT in CY 2016 and start to recover by 7 percent in CY 2017, reaching 595 MT. The dairy industry will try to recover the production that it had in CY2014 and will focus on exports to increase the demand. This scenario is expected for both products, dry whole milk powder and nonfat dry milk.

Trade

Lower domestic milk supply due to declining production this year in Brazil is forcing the country to increase dairy imports, especially nonfat dry milk. From January to September, purchases of dairy products in general including dairy ingredients from abroad reached 201,507 MT, nearly 74 percent above the same period in 2015, according to official data from the Foreign Trade Secretariat (SECEX/CAMEX). The value of imports in the first eight months of 2016 rose 32 percent, to $532 million. Brazilian exports of dairy products, totaled $102 million during the January-September period, almost half during the same period in 2015. As a result, the deficit of the Brazilian dairy balance reached $255 million, compared with a $100 million shortfall in the entire 2015.

The United States continues to be a traditional and competitive exporter of sweet whey and lactose dairy ingredients to the Brazilian market. The United States is also competitive in whey protein concentrate.

Uruguay and Argentina are the traditional suppliers of milk powder to Brazil including nonfat dry milk. Due to the shortage of milk in the market, Brazil has searched for other nontraditional milk powder suppliers and has imported some from the United States even with an import tariff of 33 percent. Most recently, some U.S exporters have taken advantage of this opportunity, with exports of US$ 7.7 million dollars so far in 2016, an increase of 546 percent compared to the same timeframe last year.

Post forecasts that productions of dry whole milk powder and nonfat dry milk will recover to the same numbers as it was in CY 2014.

Production, Supply and Demand Data Statistics