MM lags way behind in price paid to producers

30 October 1998

MM lags way behind in price paid to producers

By Robert Harris

THIS months milk price review shows Milk Marque was the only company paying producers less than 19p/litre in September.

Indeed, its daily collection value of 17.57p/litre was significantly lower than other companies, says Wye Colleges Stephen Bates.

Although the co-ops new trading bonus, announced after the August selling round, will make no difference to these prices, it will boost milk cheques for October deliveries onwards. "This should help bring Milk Marque back into the frame," says Mr Bates.

But he points out that even if the bonus adds 0.3p/litre, it will not make much difference to the average price achieved for the milk year to date.

A weaker £ could help MM achieve at least that amount. Much of the milk sold in the August selling round was on index-linked contracts, which rise in value as sterling falls.

The co-op also re-offered some of the 2.3m litres of milk left unsold, increasing clearance for the round from 83% to 90% and boosting the number of index-linked agreements.

Most mainland manufacturers are also complaining that milk supplies are very tight, thought to be due to MM shipping milk abroad for contract processing. Independent consultant Mike Bessey reckons that spot prices now top 24p/litre in England and Wales.

This will help MM achieve better prices for the 2m litres of milk a day still sold on short-term markets.

However, MM points out that much of this milk is sold through sealed bids, which would not achieve that sort of price. But, as an MM spokesman put it, any increase is welcome.

Despite depressed milk prices, quota leasing values have risen sharply again as too many farmers continue to chase meagre supplies.

Production drop

Leased quota is now worth as much as 9.25p/litre for 4% butterfat supplies, up about 0.5p on the week, says Mark Dyson of Townsends. That is 1p more than last year, despite a 3p/litre fall in the milk price over the same period, and a 100m litre drop in milk production.

"But 100m litres at this time of year is neither here nor there. Im pretty sure we will make quota again, and producers prefer to pay this much for leased quota than to risk super-levy payments," says Mr Dyson.

Supplies are tight. Although farmers looking to quit the industry know leasing would provide steady income, they prefer to sell quota to pay off borrowings, he says.

That and slack demand, caused by hard-pressed producers unwilling to commit capital, is keeping prices at about 37p/litre for 4% purchased quota.

Used quota looks attractive, and has firmed to 29p/litre, says Roger Lightfoot of Hobbs Parker. Assuming the lease price remains at 8-10p/litre, it would only take about three years to pay this off. However, supplies are limited, with many sellers opting to wait for better "clean" prices next year.

Lessors should not panic and book all their remaining needs in one go, says Charles Holt of the Farm Consultancy Group. Quota prices over the next two months are likely to be very volatile, he points out.

"Prices could peak at 1p more – but there is every opportunity that they will be a lot lower," says Mr Holt.

Even assuming that milk output continues at 0.7-0.9% above last years levels as recent Inter-vention Board figures indicate, the end of year quota situation remains finely-balanced, he adds.

"A couple of Intervention Board figures below quota, or lower butterfat figures, could put a whole different spin on things." &#42

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