15 November 1996

October milk supplies defy usual upturn

By Philip Clarke

QUOTA brokers are eagerly watching weekly milk output figures from the Intervention Board, hoping for a sign of an upturn that might do something to boost demand.

Production fell every week during October at a time when traditionally it rises due to autumn calving.

As a result, monthly production adjusted for butterfat came to just 1.08bn litres, less than in August and September and some 6.93% below quota. This took cumulative output for the year to date below quota for the first time at 0.45% under.

Compared with last year, total output is still slightly ahead. But with 37m litres of quota "permanently converted" earlier in the year, there is a bit more to play with.

Two main factors led to the surprise October result:

&#8226 When leasing hit 18p/litre in September, it scared producers into putting the brakes on.

&#8226 The over 30-month slaughter (OTMS) scheme gathered pace in October, taking more older animals out of the national herd.

With fewer animals, the scope for a sudden upturn in the next few weeks seems limited, though it is still likely the UK will end the milk year close to, if not above, quota.

Values fell sharply at the start of the week, with 4% butterfat lots worth 14p/litre to lease and 64p/litre to buy clean.

"Prices are unlikely to improve until production recovers and currently the forecast is gloomy from the sellers point of view," said Mark Dyson of Exeter agent Townsend. "Once lease values reach 12p/litre or so it is likely demand will rapidly increase and the price will rise from there."

As FW went to Press on Wednesday (Nov 13) there was some evidence of the market bottoming out. "Two days ago the trade was dropping like a stone," said Tony Carver of the National Quota Exchange. "But more people have come into the market and prices have levelled. I dont really see much of a recovery between now and the end of the leasing period on Dec 31, however."

Looking further ahead, he sees a gradual narrowing of the gap between lease and sale values as questions are raised over the future of milk quota. The debate so far points to the removal of quotas after the year 2000, with some kind of compensation.

As such, he believes the days of the non-producing quota holder are numbered and many will try to sell out in the next few years. Clean quota is likely to be below 50p/litre next April, he says, and will continue to fall thereafter.

But this view is countered by Caroline Carr of Ian Potter Associates. She reckons quotas will be phased out, rather than removed from 2000 and non-producing quota holders can still look forward to a healthy leasing income.