Production set to pass quota
Production set to pass quota
By Robert Harris
MILK production is almost certain to exceed quota this milk year, say brokers, but the big question is by how much.
The headline February figure released by the Intervention Board this week suggests production rose during the month, with provisional butterfat-adjusted deliveries put at almost 1.1bn litres, about 1.4% over profile.
But producers should take a close look before taking action, warns Jonathan Smith of BK National Quota Exchange. "No allowance has been made for the fact that 2000 is leap year. Dont be panicked into buying quota – production is not rising."
Brussels takes account of Feb 29 by allowing 1/60th of February and March output to be deducted from the milk year total. But that calculation is too late for producers looking to fine-tune production now.
So most brokers have deducted a days output from the February figures. This makes a big difference, cutting butterfat-adjusted deliveries by about 37m litres to 1.045bn litres, about 2% below quota. And the cumulative excess for the milk year so far falls from almost 121m litres to 83.5m litres.
Assuming production remains steady during March, the UK could end up over quota by about that amount, says Mr Smith. "But people are putting the brakes on, and drying off as many cows as they can. This could reduce the figure a bit."
Charles Holt of the Farm Consultancy Group is more optimistic. Butterfat levels are slightly lower this month, he points out. "Assuming that remains the case, and production remains steady – as in 1997/98 when we were in a very similar position – we could end up about 30m litres over quota."
He suspects more producers may also dump milk or cull cows this year. "Overproduction of 30m litres only amounts to about 40 litres a producer per day through March, or just over one cows worth. With very little money to finance quota purchases, its possible we could end up close to quota."
Another unknown is producer/processor temporary quota conversions. Provisional IB figures show that permanent conversions have added almost 20m litres to the wholesale pool so far. But temporary wholesale to direct quota conversions – which can be carried out after the milk year ends – could increase that further, Mr Holt suggests.
To be safe, producers should assume that super-levy thresholds will be tight this year," says Mr Holt. "Keep in touch with your milk buyer for threshold updates."
Back-to-back deals are the most cost-effective way of taking cover if milk has already been produced, he adds. The current spread between clean and used quota values is 10-12p/litre, leaving producers 4-6p to help cover costs.
However, Mr Smith says that spread may widen. "If producers can slow down cows without damaging next seasons production, that is the best action to take."