7 January 2000

Milk prices concern

MILK prices are likely to slip further in the next few months, warns Charles Holt of the Farm Consultancy Group.

"The spectre of rising interest rates, an ever-strengthening £ and supermarkets threatening to sell milk as a loss-leader means we have not seen the bottom of the milk price yet," he warns.

So, while he recommends that producers with a large quota requirement should take part in the market early to spread risk, they must take care, he adds.

Forward lease quota is now being offered at 5.25p/litre for 3.88% butterfat while permanent transfer is trading at 23.5p/litre. But with constantly diminishing returns these values are still too high, says Mr Holt. Forward lease prices opened at 6.5p/litre last year when the milk base price was 18-20p/litre. With the base price now generally at 16-18p/litre (see table), margins will be tight, if not negative, he adds. An extra 1p/litre spent on leasing quota could make the difference between profit or loss.

Many producers failed to acquire enough quota by the end of the leasing period to cover their needs for the current milk year, he adds. "In many cases they may well have to fund purchases by the sale of used quota. The back-to-back market will be quite hectic again this year." Farmers should cover their needs before values rise as the inevitability of super-levy becomes apparent, says Mr Holt. &#42