11 February 2000

January figures show UK facing super-levy threat

By Simon Wragg

HOPES that producers would end the milk year within quota were dealt a further blow this week with the release of last months production figures.

Provisional figures from the Intervention Board show January butterfat-adjusted milk deliveries totalled just over 1.15bn litres, 29.5m litres or 2.5% below profile. Although a sharp fall, it still leaves the cumulative UK output almost 99m litres over quota for the milk year, equivalent to two-and-a-half days supply at current levels.

Although cull cow data suggests many farmers have taken steps to cut back milk supplies to avoid super-levy, output needs to fall by almost 10m litres a week for the rest of the milk year to avoid going over quota, a move which is highly unlikely, say brokers.

The UK last faced this position at the end of the 1997/1998 milk year. Then, after output dipped in January, weekly production levelled out. Even allowing for culls, the rate at which cows would have to be dried off to stay under profile would severely affect milk production and cash-flows at the start of the new milk year, warn brokers.

"It will be almost impossible to avoid super-levy," says quota broker Ian Potter. He estimates the UK bill could be about 22p/litre, given the weak k, amounting to a total of just over £20m.

There are further complications. Although permanent transfer of quota from direct sale could add 19m litres to the wholesale pool, according to provisional IB figures, the level of temporary transfers (from wholesale to direct) could cancel out any benefit. But results will not be known until after the end of the milk year.

Despite super-levy looming large, quota markets have eased slightly with clean supplies trading at 34p a litre for 4% supplies; cash-strapped producers are reported to be considering throwing milk away.

For those looking to limit the impact of fines, the fall in clean quota prices (down 2-3p/litre on the week) has made back-to-back deals more credible, says Charles Holt of the Farm Consultancy Group. Costs are still high at 11-12p/litre, but for those receiving 18p/litre for milk, the 6p margin should at least cover half the production costs.

Financial constraints and super-levy are expected to hit quota trading early in the new milk year. "It will be a completely different scenario," says Mr Holt.

By far the biggest effect will be the fall in milk cheques, Mr Potter believes. With further milk price cuts expected in spring, 4% supplies are already trading under 5p/litre to lease and 21.5p/litre to purchase, the lowest for a number of years. &#42