Raging river...
In the midst of the turbulence of political-economic of the presidential transition 2023, the economic team of president-elect Milei, while proposed as required unification of exchange rates, the elimination of price controls and the elimination of taxes (apparently the elimination of Export duties will be gradual and it would take a couple of years at least taking some of the pressure off the drums), faces the urgency to neutralize the Leliqs what they achieved would avoid hyperinflation or an escalation of the us dollar. Match economists more serious in estimating a value for the officer between 700 and 800 $/US$ (equivalent in pesos of December 2023), taking the historical average of 0.34 US$/litre of milk to the producer, this would be equivalent to between 238 and 272 $/litre of feedstock. This represents a range of value necessary to normalize the relative prices of the sector of primary production and the input of the power that today are overwhelmed with components speculative.
Interesting to observe the evolution of an index of costs regional (mix of cost of corn, soy, oil and dollar expressed in value milk) between Argentina, Brazil, Chile and Uruguay.
Drivers of the price paid to the producer
Despite all the subjective eye that I could have, mostly affected by the recurrent lack of transparency that affects the marketing of milk and also the lack of communication between links in these moments of profound crisis, there are 2 indicators of strong impact on the determination of the price for the raw material: the level of inventory and the receipt of milk. The stocks have a correlation with the price to pay for the following month. The drivers of stock are multivariate (level of domestic consumption, price of goods in the international market, exchange rate, tax burden, price controls, and the perception of the entrepreneur of the current scenario and future of these factors and the intrinsic of each company...for some actors to stay with stock represents a "nail" and for other speculation).
The drivers of production also are multi-factorial, but with an added particular that while the tambero refers daily milk weigh in shipments, retroactively, the topics of recent history as the impact of the drought, the possibility of being able to maintain the supplies of food resulting in the production of cows and pregnancy rate. A red light flashes on the control panel industrial...October 2023 saw a drop with respect to the daily production of September, something only seen in 40 years of dairy for the years 2001 and 2016.
Entre septiembre y octubre se acabó el silo de maíz en la gran mayoría de los tambos argentinos. En éste contexto las compras de suplementos y concentrados experimentó aumentos inusuales acumulando +40 o +50% en 2 meses mientras el precios percibido crecía <10% mensual. Los productores no tienen financiamiento ni bancario ni comercial, experimentan costos crecientes y acuden a la venta de vacas que termina aumentando sus costos fijos. El que puede intenta pasar sus pesos a dólares sembrando o cambiando la camioneta…un verdadero lío.
The whole dairy chain comes losing silver, the processing industry nor is having a good time. According to the latest report of the convention IAPUCo/INTA, in the past 12 months whole dairy chain to argentina accumulates liabilities, but the 87% of the liabilities weighing on primary production:
"A light at the end of the tunnel"
Looking ahead, we note that the scenario is changing substantially, especially the business exporter, basically by the sinceramiento the type of change, it becomes attractive greatly. This can be seen by multiplying the future values of the milk powder or cheese for the future value of the dollar. In the chart below we see the evolution of the weights/ton of milk powder (LPE), according to the futures market, Oceania, and ROFEX local, taking into account that the Capacity of the Purchase of raw materials with target LPE average 10% of these values and the ability to purchase increases strongly in December 2023:
In normal conditions, supply to the external market (I) is a depressor of the values in the internal market (IM), for approximately the MY doubles the value of the equivalent litre of ME. Now for the drop in exports observed in the period jan-oct (-19% less than 2022) accumulated stocks, mostly cheese, and flipped excess products to MY perimiendo domestic prices. These are the conditions that will change in the short term.
Everything that we have been living in the last months came to an end!... there is a new stage production as well as economic benefits to the dairy chain as a whole. Let us make the greatest effort that the banque the rain there shall be a reward.
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