Watch out for high milk quota prices

By Robert Harris

DAIRY farmers must be careful not to throw away the advantage of lower feed prices and ample forage supplies by paying higher quota prices.

Farms with tight control of fixed costs can still offset the lower milk price by increasing production, says ADASs John Allen. “Providing quota can be leased at reasonable rates, then it remains profitable. But if the quota price is driven up in the way it has been in previous years, then the rise in production will merely compound losses.”

Lower milk prices and tighter cashflows mean rather than leasing quota for 50% or more of the milk price, as has been the case since milk values rose in 1993/94, farmers should pay no more than the equivalent of 25-30%.

For lessors, the resulting 6-7ppl still offers a fair return on investment when profits on average dairy farms are likely to fall to between 1 and 3ppl, he adds.

A leading Scottish producer agrees, describing the willingness of dairy farmers to buy milk quota at current prices as madness.

“I am baffled by the sudden demand for quota. It seems to have been driven by one broker talking up the market in a farming publication and the possibility of Milk Marque achieving an extra 2ppl on the price of milk,” says Jimmy Mitchell, who has 350 cows at Kennetsideheads, Kelso. “Why are farmers spending money they do not yet have?”

Mr Mitchell, who admits he is expanding his herd and seeking extra quota, says: “Dairy farmers who are milking cows should stick together and refuse to pay more than 6ppl to lease quota or 30p to buy.”

The comments coincide with the latest dairy costings from north and south of the border, which show continued falls in margins.

ADAS Milk Cheque results for May show an average farm gate price of just 17.1ppl, 15% lower than a year ago.

Milk from forage was 13.9 litres, down 0.6 litres; concentrate use was identical at 0.16kg/litre, though the cost of that feed had fallen by £26 to £115/t. The monthly margin over purchased feed was £92 a cow, down £13 on May 1997. Margin a litre was 15.2p, down 2.5p.

The rolling margin stands at £1171 a cow, down £158 year on the year.

Interim results from SAC-costed dairy farms comparing 1997/98 quota year with 1996/97 also show a fall of £150 a cow in margin over concentrates – £1146 a cow compared with £1297.

“Gross margins will be down even further because of lower cast cow and calf sale returns,” says SAC dairy services manager, Jimmy Goldie. The MOC cut was due to an average drop in the milk price of almost 3.9ppl over the year.

That was too much to be offset by a 5% increase in average yield to 6413 litres a cow and a rise of more than 10% in milk from forage. That has risen from maintenance plus 9.5 litres to maintenance plus 10.5 litres.

  • For this and other stories, see Farmers Weekly, 7-13 August, 1998
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