Higher milk output for July sees quota market stirred up
By Robert Harris
MILK output in July was higher than expected, and the quota market has already reacted to the news, say brokers.
Provisional figures released by the Intervention Board this week showed butterfat-adjusted deliveries for last month hit 1.21bn litres, 29.4m litres or 2.4% over quota, surprising some observers given the hot weather and shortage of grass in some areas.
At 56.3m litres, production is about one-and-a-half days over quota for the first four months of the milk year. But an extra 62m litres of quota was added to the first four months of this years milk output profile, so production is actually running 118m litres ahead of last year.
That, and the recent super-levy confirmation for the last milk year, stirred the quota market. Values for 4% supplies rose to 5.9p/litre to lease on Wednesday, and 29p/litre to buy, reports Jonathan Smith of Bruton Knowles. At the end of last week, 4% leased quota traded at 5.3-5.4p/litre, he adds.
Given present output, and allowing for the IBs 40m litre reduction in profile through October and November, Mr Smith is already confident that the UK will end up over quota at the end of next March. "I think prices will firm, but I cant see leasing values exceeding 6p/litre. Sales will probably reach 32-33p/litre."
Roger Lightfoot of Hobbs Parker agrees lease values could rise about 0.5p/litre, but doubts the sale price will climb by more than 1p. "But only if the present level of activity continues. If not, I do not expect much to happen."
Milk production figures should not directly affect quota values at this stage of the year as farmers can easily alter output, he maintains. "Having said that, there has been a definite increase in leasing. The cheaper quota has gone."
ADASs Ian Powell reckons an average producer can afford little more this year. ADAS Milk Cheque results show a 12-month rolling margin over purchased feed of £1117 a cow in June. That is down £16 on the year, though it is a marked rise on the February five-year low of £1099 a cow, he says.
The average herd is now producing just under 6900 litres a cow, a rise of 300 litres on the year. Although cows ate more concentrate to produce that milk, this was helped by lower prices.
But the rolling 12 month average margin over all feeds has slipped 0.8p to 12.6p/litre. And the milk price could fall further this year. "At 5.5p/litre, clients are taking advantage of one of the most favourable ratios of milk price less quota plus feed costs that we have seen for the past five years. But if prices go up, the situation will become very marginal." *