After an intense crisis, Argentine dairy farms embrace increased profitability

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The sector, it is recovering after a sharp drop in production in June, and prices are now “reasonably good.”

Recovery is underway. After a deep, productive crisis caused by the drought, the winds of change are blowing for the Argentine dairy industry. After several months of negative dairy activity numbers, starting in June, producers expect a slight improvement.

Last year, it was worth remembering that dozens of producers forcibly sold dairy herds, even in full production, in a difficult situation due to the effects of the drought and the rise in costs within the soybean dollar framework, making grain more expensive.

According to Jorge Giraudo, director of the Argentine Dairy Chain Observatory (OCLA), dairy farms have a promising future going forward. “Production fell 15% in the first quarter and, although there was a decrease in May, it slowed down. Only now, in the first days of June, is a recovery in production being seen. And, as for domestic consumption, which fell 17%, a slight improvement began to be noticed at the end of April. 

Producer prices are reasonably reasonable and related to the data of the necessary inputs and good price relationships. From now on, the sector will really begin to rearrange itself.”

Guillermina Mas, president of the Chamber of Milk Producers of the Western Basin of Buenos Aires (Caprolecoba), says, “Today, the chain is managing to retain value, and that is very good news.”

“The recovery has been rapid compared to other economic crises that involved devaluations, exits from stocks or changes in monetary regimes.

He assured that the change in economic policy, in terms of reducing the exchange gap, suspending withholdings (already valid until June 2025), and eliminating price controls, has been key for the chain to increase the value generated and begin to retain it.

In this context, he recalled that although other crises could also have climatic and economic impacts, there was an extraordinary effect generated by last year’s drought in this particular case. “This meant that the drop in production was significant, closing the first quarter of this year 15% below the previous one.

At least a third of that drop was due to fewer dairy farms and/or cows per establishment. This lower supply, along with economic changes, has driven the improvement in the price that producers are capturing month after month,” he indicated.

In detail, although updated data from last month is missing, according to Siglea [it carries data on prices], last April, the average value paid to the producer was $355.16 per litre. While the production cost was $322 per litre, the equilibrium value was $367. That is to say, the margins between one number and another were shortened to only $11. An INTA report prepared in April showed that the Average Production Cost was $321.34 per litre with an average profitability of 4.3%.

“The recovery of the dairy gate price has been rapid and strong. Although we have not yet reached the equilibrium price, we hope to reach that point in May, even surpassing it and for it to be sustainable over time. The reality is that there is still bidding for milk, and it is still a favourable time to achieve good prices. As a chamber, this is why we tell producers to dedicate time to commercial management,” Mas highlighted.

In projection towards the second semester, the producer indicated that this 15% drop in production is expected to decrease month by month. However, it could be insufficient to reach last year’s production levels in the annual total.

“This dynamic requires that exports can continue to grow, and for this, it is key to have reasonable international prices, something that is happening because the GDT New Zealand Price Index has been rising since March and is at US$3,478 per ton of milk powder whole (LPE); as well as having the suspension of DEX for dairy products in force until June 2025″, he stressed.

For this reason, after the devaluation of last December, questions now arise about the exchange rate levels and the exchange rate regime in general, about the external market. For Giraudo, regarding exports that peaked in February due to the devaluation and suspension of export duties (DEX), “they continue to grow year-on-year, but also slowing down because the exchange rate is already beginning to be absorbed by inflation.”

On the domestic market side, Más indicated that “with consumption very depressed and in recession, it is expected that recovery could occur at some point in the third or fourth quarter of the year.”

Source: La Nacion

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