14 February 1997

Milk quota chaos as IBerror creates 3.4m-litre surplus

By Philip Clarke

CONFUSION reigned in the milk quota market this week when the Intervention Board put out January production figures showing the UK back over quota, only to revise them two days later to show a continuing deficit.

The original data put the UK 3.4m litres over quota for the first 10 months of the milk year, wiping out the 70m-litre shortfall at the end of December.

This prompted a spate of claims by brokers that clean quota prices would now accelerate as producers sought to cover their excess production. But the data contained an error, with the revised figure for December deliveries over-stated by 35m litres, or one days supply.

The corrected figures issued by the IB now put the UK 32m litres (0.27%) under quota cumulatively.

This deficit means that production must exceed quota by 4m litres a week in the last eight weeks of the milk year to hit quota.

But the rate of weekly production continues to climb and, with butterfats still running high (4.18% in January, or 22 points over base), the risk of super-levy is growing.

For the past two months of the milk year the IB quota profile allows for about 260m litres a week at 3.96% butterfat.

Figures for the week ending Feb 1 put actual deliveries at 248m litres. But this has to be adjusted up because it only covers 95% of milk sales and does not account for butterfat.

Once these are included, actual output is estimated at 268m litres, or 8m litres over the weekly quota, double the rate required.

"This has made the likelihood of being over quota more of a certainty," says Swindon-based brokers Lovedays. "As a result, the clean quota market is picking up, with 4% trading at 59p/litre.

"The used market is still active, with 4% trading at 49p/litre and the number of back-to-back inquiries is growing. At a cost of about 10p, producers know they will make more money this way rather than cutting cows back."

But the picture is not complete yet, and three factors could still mean super-levy is avoided:

&#8226 Permanent conversions of direct sale to wholesale quota should add 20m litres to the quota pool.

&#8226 The selective cull should take out a limited number of milkers in March.

&#8226 Temporary transfers of quota in April will cover a bit more production.

But if super-levy is triggered, at least it will not be as painful as last year, as the recent green £ revaluations have taken the penalty down from 31.42p/litre to 28.18p/litre.

There is also the possibility of another cut on Mar 29.