Super-levy looms after January milk figures

By Simon Wragg

HOPES that producers would end the milk year within quota were dealt a further blow this week with the release of last months production figures.

Provisional figures from the Intervention Board show January butterfat-adjusted milk deliveries totalled just over 1.15 billion litres, 29.5m litres or 2.5% below profile.

Although a sharp fall, it still leaves the cumulative UK output almost 99m litres over quota for the milk year, equivalent to two-and-a-half days supply at current levels.

Cull cow data suggest many farmers have taken steps to cut back milk supplies to avoid super-levy.

But output still needs to fall by almost 10m litres a week for the rest of the milk year to avoid going over quota, a move which is highly unlikely, say brokers.

The UK last faced this position at the end of the 1997/1998 milk year.

Then, after output dipped in January, weekly production levelled out.

Even allowing for culls, the rate at which cows would have to be dried off to stay under profile would severely affect milk production and cashflows at the start of the new milk year, warn brokers.

“It will be almost impossible to avoid super-levy,” says quota broker Ian Potter.

He estimates the UK bill could be about 22ppl, given the weak Euro, amounting to a total of just over 20m.

There are further complications.

Although permanent transfer of quota from direct sale could add 19m litres to the wholesale pool, according to provisional IB figures, the level of temporary transfers (from wholesale to direct) could cancel out any benefit.

But results will not be known until after the end of the milk year.

Despite super-levy looming large, quota markets have eased slightly, with clean supplies trading at 34ppl for 4% supplies; cash-strapped producers are reported to be considering throwing milk away.

For those looking to limit the impact of fines, the fall in clean quota prices (down 2-3ppl on the week) has made back-to-back deals more credible, says Charles Holt of the Farm Consultancy Group.

Costs are still high at 11-12ppl, but for those receiving 18ppl for milk, the 6p margin should at least cover half the production costs.

Financial constraints and super-levy are expected to hit quota trading early in the new milk year. “It will be a completely different scenario,” says Mr Holt.

By far the biggest effect will be the fall in milk cheques, Mr Potter believes.

With further milk price cuts expected in spring, 4% supplies are already trading under 5ppl to lease and 21.5ppl to purchase, the lowest for a number of years.