By Robert Harris
MILK output fell sharply in November, adding weight to earlier fears that poor weather during silage making has reduced the quality of stocks.
This is the third month in a row that national production failed to make quota. Provisional figures from the Intervention Board show 1.048 billion butterfat-adjusted litres were delivered in November.
That is more than 38 million litres below quota, a 3.5% deficit, almost three times the undershoot seen in each of the previous two months.
October figures have also been revised downwards, by 1.4m litres. This brings the cumulative deficit for the milk year to 43m litres, and means production is running 139m litres behind last year.
While it is too early to predict that the UK will finish this milk year under quota, (especially since this has only happened twice in the past 15 years), such sentiment is hardening and the November figures are likely to put further pressure on quota prices.
These slipped back after last months figures were released, to level at 8.4-8.5ppl for leased 4% butterfat supplies; sale quota also slipped slightly to about 38ppl.
Prices in the remaining two weeks of leased quota trading will drop by a further 1ppl, though this could be masked to an extent if the December market follows the usual volatile pattern, predicts Charles Holt of the Farm Consultancy Group.
Sellers are under less pressure – although there is plenty of sale quota on agents books, producers may try to turn on the taps in the new year if weekly production figures show continued shortfall, he adds.
Although 11% more leased quota has been traded this season, Mr Holt believes there is plenty left. “The Intervention Board is getting more efficient at processing transfers, so you would expect this.
“People are also leaving the industry, and are choosing to lease out rather than sell – where else can you get 20% return on capital?”
The psychological boost of leasing 3.7% quota under 8p could put a floor in the market, suggests Tony Carver of Carver Knowles. That would price 4% supplies at 8.25-8.5ppl, depending on lot size.
“Larger blocks lots of 100,000 litres plus are fetching a premium, as producers who traditionally exceed quota by 200-400,000 litres look for cover.”
Producers who are under-producing should look to lease out supplies soon, he adds. “If the cows are not milking well, rather than trying to chase yield it might be worth looking at the returns leasing can bring.”