13 November 1998

Output fall pushes down leased milk quota price

By Robert Harris

LEASED milk quota prices fell this week after a sharper than expected fall in milk output and a rise in quota supplies, the first time values have dropped significantly this season.

Latest Intervention Board figures confirm a 7.3m litre drop in September butterfat adjusted production. And provisional figures for October show output was 13.2m litres (1.17%) below quota, at 1.116bn litres.

The combination creates a cumulative deficit for the season of 3.5m litres, 93m litres below last years level. Although this is only about three days supply, it was enough to knock prices back, says Charles Holt, of the Farm Consultancy Group. "The asking prices from all agents have dropped." He values 4% adjusted supplies at 8.7p/litre, down 0.5p.

The fall in milk output could be due to poor weather, in which case production could easily bounce back. But Yorks producer and Farmers Quota Bank member Geoff Bean doubts it. "Producers will struggle to make quota. There has been the biggest haemorrhaging of milk producers and cows ever. And there is not the feed value in the silage; no sun equals no sugar equals no oomph."

He reckons quota prices are being artificially held up by agents, and can only fall. "It wont be a decimal point or two. It will be a huge drop."

Although IB figures show that volume leased to the end of October has risen by 10% to 703m litres, that still leaves about 40% to trade. And demand is likely to be down on previous seasons, he says.

Sale quota deals are slower than last year. Just 235m litres had been traded by Oct 31, 13% down on the year. This will also help keep prices in check, says Mr Bean.

Jonathan Smith, of Bruton Knowles, believes farmers who have quit are leasing in to clean up used quota before selling it. That, and an increase in output by many remaining producers could see demand for leased supplies stay buoyant.

Countering that is a flush of leased quota hitting the market this week. Prices have already eased 0.25-0.5p/litre, with lessors once again willing to part with 4% butterfat quota for 9p/litre. Values could fall a further 0.5p by the middle of the month, he says.

Sales values are likely to settle 1p down about 38p/litre. "Having tasted these prices, sellers will hold on to supplies until the leasing period ends, and see what happens then."

But George Paton, of Lovedays, says the market factored in a bigger fall than occurred, as higher butterfat figures propped up levels. Leased value settled to 8.8p/litre for 4% supplies last Friday, and edged up 9p this week, he says. &#42