South American milk production had a difficult start to 2024, but brighter days are on the horizon. A number of factors including weather challenges and economic uncertainties have combined to depress output among many of the continent’s major producers. Over the first half of the year, combined production across five of the region’s most important dairy countries (Argentina, Uruguay, Brazil, Colombia, and Chile) ran 2.4% behind the same period in 2023.
Major exporters
Perhaps no country had such a difficult start to the year as Argentina. Although Argentina has struggled with economic complications for ages, the economic reforms implemented by the new president late last year sent shockwaves across the country as the peso devalued and inflation soared. To insulate themselves, dairy farmers aggressively pulled back production early in the year by drying cows off early and reformulating feed rations. These adjustments weighed heavily on output, and milk production in Argentina sank below prior year levels by double digits.
However, more recently, the situation has begun to shift. Scarce milk supplies have driven milk prices upward and, combined with moderate feed costs, producer margins are sitting above historical averages. This dynamic is boosting production, and the gap with prior year output is narrowing. While producers are digging themselves out of a deep hole, if current conditions persist, it seems likely that milk output will near parity with 2023 levels by the end of the year.
Across the Rio de la Plata in Uruguay, milk production has also faltered, albeit for different reasons. After a positive start to the year, heavy rains in the second quarter caused flooding in parts of the country. The negative impacts on cow comfort combined with greater incidence of health issues such as mastitis also pushed back on production and caused volumes to tumble. As in Argentina, producer margins remain respectable, and as the weather has cleared, it seems likely that production will recover over the balance of the year.
Argentina and Uruguay are South America’s main exporters of dairy products, and a decline in milk production would typically result in a reduction of dairy product shipments from the region. However, this hasn’t been the case this year as both countries have largely maintained export performance thus far. In the case of Argentina, this is due to a massive slowdown in domestic consumption. Economic strife has dramatically reduced consumers’ appetite for dairy, among other products, and freed up more product to be exported. In Uruguay, which is significantly more oriented to the export market, it appears likely that exporters have whittled down product stocks in order to meet their commercial obligations.
Three more players
While the region’s exporters have struggled with milk production, the situation has been mixed among the region’s importers. Brazil is both the largest milk producer and largest importer in South America, and farmers there started the year on a strong note as a favorable combination of milk prices and operating costs encouraged production growth. However, widespread flooding in the southern part of the country caused losses in the second quarter. While the main dairy areas largely escaped the immediate effects of the rains, resulting logistical challenges prevented milk from being picked up from farms and interrupted the distribution of finished products. Imports have remained upbeat this year against 2023’s record levels, especially for certain products like cheese and skim milk powder.
Meanwhile, 2024 has been a positive year for milk production in Chile, which has seen output rise following the struggles of the last few years. Favorable pasture conditions and improved profitability have underpinned the gains in recent months, which are expected to continue over the rest of the year.
In Colombia, production grew significantly in the first quarter before coming under pressure in recent months. Milk prices have fallen below prior year levels but remain strong by historical standards.
This is likely to be a year of two halves for South America’s dairy industry. Many of the challenges that confronted producers early in the year appear to be dissipating. If current conditions hold, most of the continent’s key producers will likely experience improved output in the final months of the year.
