15 March 2002

Leasing market collapses as milk production jumps

By Olivia Cooper

MILK production for February was the highest since 1994, but chances of hitting quota this year are slim, say traders.

RPA figures estimate February milk production at 1.08bn litres. With a butterfat of 4.03%, this is almost 9m litres above the Charles Holt/farmers weekly profile for February.

But this was not as high as expected and cumulative production is still 146m litres below profile. MDC Datum says annual quota is 14.02bn litres after permanent transfers and although temporary conversions could be considerable, they will not be known until May.

This leaves about 1.36bn litres for March production – 165m litres over profile.

"This has caused the leasing market to collapse," says Mr Holt. Values of 4% butterfat quota have dropped about 0.3p/litre in the past week to 0.4p/litre; lower fats are at 0.2p/litre.

Jonathan Smith, of BK National Quota Exchange, says: "This years leasing will be very difficult now. We will be flooded with quota to prevent confiscation, but prices will continue to depend on what the dairies do."

If dairies consider there is no longer a risk of overproduction, they may start to release milk cheques without producers having to cover their quota requirement. This would be death to this years prices, according to Mr Smith.

Meanwhile, forward sales of quota are steady at about 19.5p/litre, as vendors are reluctant to trade despite good demand from purchasers.

Confidence is high, with forward leasing at 3p/litre, but future prices will depend on sales of cows this spring, says George Paton, of agent WebbPaton.

Silage quality and milk price negotiations in April will also have a significant impact, he adds.

&#8226 The milk year ends on Mar 31, but leased quota trading will effectively cease on Mar 25 because cheques need to be cleared before Good Friday. &#42