Milk production in Argentina presents a labyrinthine scenario: almost all actors are confident that there is a way out, but they cannot find it at first glance, because there is global factors that intersect with the national situationmarked by recessive stagnation.
In recent months, producers have suffered serious blows to their productivity and profitability. The consequences of a prolonged drought, coupled with an excessive increase in the costs of feeding their herds, combined with the previous government’s selective devaluations (1 and 2 soybean dollars) and lagged prices due to state-imposed price controls, resulted in an unprecedented drop in production for the summer-autumn 2023/24 season of 18% nationally.
Although this scenario is starting to be reversedwith the elimination of price controls, the devaluation of the peso and a more beneficial climate for milk production, there are other dark clouds on the horizon.
In recent months, dairy producers have received increases in the price of raw milk of 94.4%, accumulated between the months of December and February, according to Argentina’s Integrated Dairy Management System (SIGLEA). These data presented by the official body, which depends on the Ministry of Economy, show that the economic damage suffered months ago has been repaired. At the same time, production costs have stabilized and forage stocks are recovering, which allows us to predict a good winter-spring campaign, which already has positive prospects.
Specifically, taking the reference price of the value of raw milk from SIGLEA and the value of corn that the Rosario Stock Exchange shows for the month of February, the milk/corn ratio in February was 2, and further increases would reach levels above historic highs. In this sense, the favorable wind experienced by the price of raw milk in recent months is losing strength.
Following the cumulative 5% drop in the international price of powdered milk over the past two months, according to Global Dairy Trade (GDT), coupled with an increasingly less competitive exchange rate for exports, the dairy sector is witnessing a slowdown in the price increases that milk producers have been receiving.
It should be clarified that exports are settled in an 80-20 scheme, with the majority of the value in the official dollar and the remaining 20% in the CCS dollar, which has maintained and even decreased in value in recent weeks.
Domestic market in decline
Both the external market and local consumption are no longer boosted and suggest a certain caution in demand for the remainder of the year.
The domestic market is experiencing a sharp decline, so no further price increases are expected. The drop in consumer purchasing power is notable across all consumption measures.
A accumulated drop in dairy consumption was 16.5%, from December 2023 to January 2024, compared to the same period last year, according to the National Dairy Directorate.
In February, compared to the same month in 2023, the drop was 9.6%, according to data from the consulting company Scentia, which measures the supermarket and self-service channel, considering the breakfast and snacks categories. .
It is important to note that this downward trend has been deepening month by month and the forecast is that March’s numbers will be worse. A no less important fact is that between 75% and 80% of the country’s milk production is destined for domestic consumption.
However, specific problems are multiplying, further obscuring the bigger picture.
One of the most serious cases is that of the company “La Lácteo”, located in the province of Córdoba. With more than “two months of unpaid wages and debts that are stifling its operations,” according to workers, the company is struggling to stay afloat as the labor conflict worsens by the day.
It all started in early January, when an unfulfilled promise to pay December salaries to 129 employees triggered a series of problems that brought the company to the brink of collapse. Problems with payments to suppliers had a direct impact on the supply of raw materials. Production decreased drastically and marketing their products became complicated.
The crisis at the SanCor cooperative is better known. The latest incident in a series of marches and counter-marches, with milk production affected by the union conflict, is the request by the Argentine Republic Dairy Industry Workers’ Association (ATILRA) to investigate exports of powdered milk to Cuba by Sancor , accused of embezzling funds to avoid paying employees and creditors. Meanwhile, the company responded that all its operations are duly registered and that it has not received any complaints.
The company suffered several strikes driven by unions, in a context of falling production and a serious administrative crisis.
The information is from Clarín, translated and adapted by the MilkPoint team.
