15 June 2001

Stock shortage responsible for milk output fall

By Robert Harris

NATIONAL milk output continues to struggle. The latest provisional figures for May, from the Intervention Board, show the volume of milk delivered to dairies was 1.29bn litres, slightly less than May 2000, itself a poor month.

The IB is no longer issuing a monthly quota profile. However, Charles Holt, of the Farm Consultancy Group, has developed his own profile using the average monthly production figures for the past five years, and the same butterfat figures as last year.

According to this guide, which farmers weekly will continue to use, dairies received 1.28bn butterfat-adjusted litres, a shortfall of 53m litres compared with profile. This takes the cumulative deficit for the first two months of the milk year to 114.2m litres, or 4.5%.

"Many people think that cows are milking well – and so they are," says Mr Holt. "But there just arent enough to go round." More producers left the industry last year and foot-and-mouth has taken its toll on the national herd. "I reckon 100,000 cows have been lost to F&M, which would have produced 700m litres/year."

Lease quota prices continue to hover around the 1p/litre mark for 4% adjusted supplies, and 4% sales are worth about 13p/litre, says Mr Holt. "We should see some easing, but sale values will not collapse. I dont think vendors will let supplies go for much less."

He believes most dairy farmers can look to the winter with confidence. "Milk is likely to remain short, which should help prices." Leased quota is cheap and silage stocks are good, he adds.

Firming product prices could help. Despite sterlings recent strength, which undercuts export values, butter prices are holding up well, says industry consultant Michael Bessey.

"They have risen about £50/t over the past three weeks. And long-expected price firming for mild Cheddar is now under way. Prices have edged up by £30-50/t in the past two weeks." Further increases in cheese values are expected over the next couple of months, he adds, which could lift prices to about £2350/t.

But strong skim milk powder gains could be tempered by recent official changes, says Mr Bessey.

EU export refunds were cut from k150/t to a "nominal" k50/t. This was probably to safeguard internal supplies. Reduced production, coupled with rising world prices and the weakening of the k against the $, could have left EU markets short, says Mr Bessey.

Within days, the US changed price support levels, raising butter intervention prices by 30% and reducing SMP support by 11%.

"Although the US is limited under GATT to subsidising the export of only 70,000t of SMP a year, the new lower US price could push down world price levels to around $2000/t, a 5-10% drop. At this level unsubsidised US exports could be made," says Mr Bessey. "Its a bit tricky to read at the moment." &#42