16 February 1996

Quota firms as surplus doubles

By Philip Clarke

MILK quota prices have firmed in the last week following publication of latest output figures by the Intervention Board.

Deliveries in January came to 1.225bn litres, some 6.3% over quota after allowing for an average butterfat content of 4.12%.

This takes the cumulative position since last April to 1.39% (163m litres) over the quota profile – equivalent to more than four days supply. This is almost double the surplus that existed at the end of December.

This is not as bad as at the same time last year when the UK was 2.23% (265m litres) over quota. But then weekly production was falling as producers sought to limit their exposure to super-levy. By the end of March 1995 the surplus had been cut to 1.1% (152m litres) over quota.

This season deliveries have been higher during January than they were in December at 257m litres/week compared with 253m litres/week. (In January 1995 they were running at just 236m litres/week.)

The last fortnight has seen a slight reversal of this trend. "But its not nearly fast enough to be able to get us level with quota by the end of the milk year. At this stage it is looking inevitable that a levy will be payable," says Tony Carver of Bruton Knowles National Quota Exchange.

Better than expected fodder quality is just one reason for the higher output.

The impact on the quota market has been a bullish one, with prices moving back up to 80p/litre for unused lots, while 100% used is trading at about 59p/litre.

This value for fully used quota has been inflated by the large number of back-to-back deals being done as the end of the milk year approaches, says Andrew Ranson of agents Loveday and Loveday. Producers with spare quota are selling at the higher price and buying used quota back at the lower price.

But this "buying in" value is considerably higher than the 50p to 53p/litre "base price" that quota is expected to be worth once the new milk year starts in April.

Mr Ranson believes the market will not get much firmer and the margin between clean and fully used quota will not get any wider than the current 21p/litre. "Depending on the income tax bracket of the over quota producer, at 25% tax he will be better off paying the super-levy than paying a margin of more than 23.25p/litre," he says.

Mr Carver agrees that prices are unlikely to go much higher. With new season quota valued at about 50p to 53p/litre, and the super-levy likely to be 31.42p/litre, it makes little sense to pay more than 80p.

He believes there are still many producers with some quota to sell and supplies could increase in the remaining weeks. &#42