12 December 1997

Cost of excess milk falls on producers

By Philip Clarke

MILK producers continue to pay the price for massive over-production in the first two months of the milk year.

November deliveries were below quota for the fourth month in a row. But cumulative deliveries are still 96m litres (1.03%) over quota – equivalent to almost three days supply.

The good news is that there is more quota available in the final three months of the milk year. Following a revamp of the profile at the start of the season, the Intervention Board allocated an extra 79m litres to January, February and March.

But the bad news is that, in butterfat adjusted terms, the UK is already 107m litres ahead of last years output to the end of November, while weekly production is already 8m litres up on last year and rising.

Last season the UK ended the milk year some 50m litres over quota, incurring a superlevy of £13.6m. It seems inevitable that quota will be exceeded again.

This should come as little surprise, as only twice in the past 14 years has the UK actually ended the year below quota. As such, most consultants advise producers to plan their quota leases on what their margins can justify.

But inevitably there is some market reaction to the regular IB figures and this month has been no exception.

Lease values firmed slightly on Monday, as producers absorbed the data and decided to cover their requirements without further delay, says Emma Craig of Bruton Knowles National Quota Exchange. Quota with 4% butterfat was clearing 9p/litre.

"Supplies are fairly plentiful, but demand has also picked up. The biggest problem is with lot size. Many farmers are offering it in 10,000-litre and 15,000-litres lots. With the Intervention Board admin fee of about £20 to pay, that makes it harder for lessees to justify."

At auction on Monday, Frank R Marshall cleared 2m litres at Knutsford, with 4% butterfat lots averaging 9p/litre. And on Tues-day, about 1.4m litres went at similar money at a Lovedays auction in Skipton.

But Peter Weston-Davies of Charles Holt Associates says lessees should not panic. "All the pressures are for the market to drift down. There is still quota around and the price always wobbles in December."

Exactly how much quota is still to come to market is a moot point. November saw a big catch-up in the volume of quota leased. It had been lagging last years level by 16% in October, but is now only 9% down.

It seems unlikely that this years total supply will match last years as many "occasional lessors" will prefer to produce the milk themselves than offer it to someone else. A final "flood" of quota is being largely dismissed.