7 April 2000

Quota lease trade hits 10-year low

A NEW quota year and the prospect of milk price cuts later this spring has had a significant impact on quota trading with leasing values at their lowest since the late 1980s.

This week lease deals rose slightly to about 4.3p/litre for 4% butterfat supplies. However, even at that level it is still the lowest price since 1988, comments Jonathan Smith of Bruton Knowles. "There are a few producers willing to commit at this level and who are clearly saying they can make a margin at that price. But the likelihood of further milk price cuts makes for a slow trade."

On the purchase side, clean units are currently 21p/litre. But Mr Smith suggests that this may be unsustainable and he expects it to fall below 20p/litre as dairies announce spring milk prices. Many are expected to cut payments to producers.

Andrew Ranson of Clayson Hazelwood agrees, suggesting the price fall could average 0.8p/litre on the level achieved last October. "Looking at the proposed milk prices from Milk Link, Dairy Crest and Unigate producers could see 0.5-1.5p/litre wiped off prices. That will impact on trading.

"I have seen some 4% supplies offered for leasing at 3.8p/litre, but whether that was ever taken up or not is another matter. The big question is how many producers are leaving the industry; that will affect the amount of quota available. The lease market has potential to fall to 3p/litre, but equally if producers believe theyve hit the bottom and show some optimism it could climb to 6p/litre," says Mr Ranson.

Just as producers are having to manage risk of further rises in quota value, those leasing out are wary of falls, suggests Mark Webb of Webb Paton. "Many appear unwilling to lease out at current levels, but I cant see any good reason why it should rise in the short term. They may have to get used to these prices."