15 October 1999

Higher milk production sees rise in quota value

By Robert Harris

MILK output moved further over profile in September and quota values edged up as a result.

But some brokers suspect the rise is likely to be capped in the short term by low milk prices and a belief that production could soon fall back.

Producers delivered just over 1.1bn butterfat adjusted litres during the month, 17.7m litres, or 1.6% over quota, according to provisional Intervention Board figures released this week.

Cumulative production for the first half of the milk year is now almost 122m litres, or 1.7%, over quota profile. That is the equivalent of three-and-a-half days supply.

Production is now 174m litres ahead of last year. And the IB has deducted 40m litres from this seasons October and November profile, so production will have to drop significantly if it is to stand any chance of coming in under the new profile, says Jonathan Smith of Glos-based Bruton Knowles.

"Trade has picked up quite a bit since the figures were released. The phones have been fairly hectic." Leasing values for 4% butterfat have risen 0.2p to average 6.5p/litre, he says. Sales quota (4% with land) is up 0.5p to 30.5p/litre.

Mike Taylor, of Shropshire-based Barbers, reports similar values. Although there is no immediate pressure, prices could jump in December as the leasing deadline approaches, he adds.

"The only mitigating factor is that the butterfat base is slightly lower at the moment. But milk production is still steaming away. I think there is going to be quite a demand for leasing in particular."

Andrew Ranson of Clayson Haselwood suspects any rise will be small. "We must not forget the effect of low milk prices, which will hit next months milk cheques. And we are still not hugely over quota, and only halfway through the milk year. A cold spell in the winter could soon cut output."

Some producers may also have been milking cows hard off cheap grass to make the most of seasonal bonuses and will cut back. Others may have bought extra cows for the same reason and will cull them, says Mr Ranson.

Reports that UK dairy firms are experiencing tight supplies this month backs that up, suggesting a sharper than usual downturn.

The reluctance of many producers to take cover, as borne out by IB trading statistics, also suggests many intend to produce within quota. But some reluctance may also have been triggered by confusion over trading deadlines, says Jonathan Smith of Bruton Knowles.

A consultation document on milk quota management under Agenda 2000 recently released by MAFF contained proposals to extend the leasing deadline by three months to Mar 31 (Business, Sept 3). "But while it is likely to be implemented, the change will not take effect until next quota year. The first time producers will be able to lease quota after Dec 31 will be in 2001, not 2000," says Mr Smith. &#42