Adverse weather and economic instability have challenged South America’s key dairy exporting countries this year, while weak supplies have driven milk prices higher, and that has led to improved profitability. As milk prices rise, milk production could follow in the fourth quarter of 2024 leading to more product on the international market, said Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aries.
“In Argentina, an aggressive economic agenda implemented by the new president late last year resulted in a major currency devaluation and soaring inflation for the country,” Ganley said. “The instability ignited by these reforms drove producers there to reduce their costs by drying cows off early and reformulating feed rations away from expensive concentrates.”
As a result of these challenges, year-over-year milk production tumbled by 13% in the first half of the year. As milk supplies fell and milk prices rose, producer margins soared to multi-year highs, she added. High margins encouraged producers to increase output, narrowing the production gap with prior-year production. The year-over-year deficit slipped to just 4.8% in July and 6.2% in August.
In the first quarter of 2024, Uruguay posted a 2.2% increase in output, but as excessive rains led to flooding in key dairy areas, that growth was undone in the second quarter, Ganley noted. Torrential rains and flooding negatively impacted pasture conditions, cow comfort, and animal health, which ultimately caused a cumulative 10.6% drop in production in the second quarter.
Similar to what occurred in Argentina, falling supplies in Uruguay spurred increases in milk prices in the Southern Hemisphere’s winter. Even though milk prices failed to exceed prior-year levels, when combined with moderate operating costs, the increase in milk prices was sufficient to deliver stronger producer margins, Ganley said. Uruguayan producers responded and the large year-over-year gap in milk production begun to shrink, with volumes down 9.2% in July and 5.3% in August, compared to the same months in 2023.
“South America will remain a key component of the global dairy supply matrix as a growing global population requires more dairy,” Ganley noted. “But to substantively contribute to global dairy demand, it will be critical that the region’s exporters see milk production improve.”
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Publish date : 2024-10-23 09:16:00
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