15 May 1998

Would-be quota lessees advised to act quickly

By Robert Harris

MILK producers looking to lease quota should consider taking some cover now – prices are expected to climb sharply later in the season, though quite when is open to debate.

Demand for leased quota is high, with many producers looking to increase production to spread fixed costs. But lessors seem prepared to hold out for better prices until the threat of super-levy focuses producers minds.

"The market is turning into a cat and mouse game," says Tony Carver of Worcs-based Carver Knowles. There are few deals being done, with prices for 4% quota rising about 0.5p in the past few weeks, he reports. Values range from 6.5 to 6.7p/litre, slightly higher than producers are prepared to pay.

"Anything between 6 and 6.5p/litre would be swallowed up," says Mr Carver. Lessees hope that smaller milk cheques this month (for April deliveries) will drive values down to those levels.

But April milk production was higher than some expected, at 0.5% over quota despite an extra 20m litres being added to the profile. That is likely to hold prices up, but is unlikely to raise them much, Mr Carver believes.

"I do not see any producer being forced into paying more than 7p/litre for quota over the next few months. But it would be foolhardy to wait until November before leasing."

But ADASs Ian Powell reckons the April figures confirm that farmers made few cutbacks at the end of the last milk year, so many units entered the new milk year on a high plane of nutrition.

"Despite the awful April weather, production is still slightly over quota. That extra production will carry through as farmers push output to cover their costs. That could put huge pressure on the market later in the season," he predicts. "If I needed a reasonable amount of quota I would be looking to take some cover."

Quota for sale is in very short supply, with far fewer milk producers giving up milk than was expected, says Mr Carver. Demand is also limited.

"There isnt the money around to splash out on capital investments. There is a slow but steady trade, but prices are unlikely to go up more than 33-34p for 4% quota in the near future." But once the end of the year approaches, premium for clean litres will push prices to about 40p/litre, he adds.

Mr Powell reckons it may pay to wait. "Over 30p looks relatively expensive for 4% quota when you take account of tax effects."

&#8226 This years quota profile has been slightly altered to better reflect monthly output.

Several days worth of quota have been moved from July, August and September, where production has been below profile for the past three years, according to the Intervention Board.

Most has been reallocated to April and May, though June also sees a slight rise. "It takes into account there was no drastic cutback at the end of last milk year," says a spokesman.

Despite Aprils gain of 20m litres, IB figures show production edged over quota by just over 6m litres, about 0.5%. But that is still some 30m litres below April 1997.

IBs milk production estimate for March has been confirmed at 1208.52m litres, just 1m litres below the provisional figure. Provisional super-levy for 1997/98 remains at just over £38m.