Farm Ireland

Tuesday 16 January 2018

Hunt for milk quota drives price to 40c/l

Sales agreed up to 53c/l as demand reaches an all-time high

Darragh McCullough

Darragh McCullough

The cost of milk quota looks to be heading north of 40c/l as dairy farmers become increasingly desperate to avoid superlevy fines.

With all of the country's leading milk processors over quota, and many farmers already having milk cheques stopped by their creameries, demand for milk quota is at an all-time high.

A number of recent sales of milk quota have seen values well in excess of 40c/l being paid, but quota attached to land has made even more.

Close to 53c/l was paid last week for a 363,000-litre quota, which was sold with a 79ac holding in Co Meath.

Similar sales are understood to have been agreed across the northwest.

A Cork-based auctioneer said that many of his clients had paid more than 40c/l for quota that was bought with land. In many cases, the stamp duty, capital gains taxes and solicitor and legal fees often add 50pc to the basic cost of the quota involved.

He said the scramble for quota attached to land sales had intensified over the summer.

By re-selling the land afterwards, farmers were attempting to side-step the ring-fencing rules that apply to the quota trading and leasing schemes, he claimed.

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It is expected that the intense demand for quota will prompt a sharp increase in the bid price for milk in the upcoming round of the quota trading scheme.

The next round of the scheme for 2012-2013 opened last week. The closing date for applications is Friday, October 7.

During the last round of the scheme, 31c/l and 32c/l were offered in Dairygold and Glanbia respectively for quota, but it is expected that the trading price for this particular round could be significantly higher.

However, Teagasc's dairy economics specialist, Laurance Shalloo, said that only the top 5pc of dairy farmers could afford to pay more than 40c/l for quota.

"The farmers that bought at 45c/l in 2007 have got three additional years' cover from that purchase," he said.

"This is short-term panic by farmers who are letting good cash-flow cloud their judgement. Switching to once-a-day milking should make much more sense for most farmers."

Mr Shalloo was also critical of the absence of concrete information regarding processing rights after quotas go in 2015. He said the uncertainty was fuelling demand for quota.

There is also growing uncertainty about the possible hidden value of quota and whether it is linked to processing rights in the future.

Kerry is the only co-op that has clarified this issue for its suppliers by guaranteeing processing rights of up to 120pc of suppliers' milk quota after 2015. Carbury is expected to unveil a similar proposal over the coming weeks, but with a higher limit.

Meanwhile, the IFA is calling for greater assistance for the growing number of farmers who are already over quota.

IFA dairy committee chairman Kevin Kiersey said co-ops must adopt a more measured approach to early superlevy fines, to minimise cash-flow problems for farm families.

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