Independent view: Expect quota expansions to be constrained
The results of the latest round of the milk quota trading scheme highlight the hunger that exists for quota.
The Department of Agriculture confirmed that a total of just over 25.5m litres of quota was offered for sale, with almost 25m litres successfully traded. However, the volume of milk sought by farmers totalled nearly 162m litres.
A cursory glance at the figures shows the real thirst for quota out there. In Clona -- the co-op with the highest price of 35c/l -- 261,488 litres were offered for sale but 727,872 litres were sought. That is almost 2.8 litres sought for every litre offered.
At Dairygold and Glanbia, where the market clearance price was 31c, the demand for quota is even greater. The volume offered for sale at Dairygold was around 4m litres but the volume sought was more than 29m litres. That is a ratio of more than 7:1. At Glanbia, there was close to 6m litres offered but 39.5m litres sought -- a ratio of almost 6.5:1.
The ratio of demand to availability was even greater in the west Cork co-ops of Bandon and Barryroe. There it stood at 8:1 and 9.3:1 respectively. At Lisavaird, the ratio stood at more than 11.5:1.
There is little doubt that economics of buying quota stack up at the moment. The 31c/l paid by Glanbia and Dairygold suppliers equates to 7.5c/l over the four years to April 2015.
Putting the cost of production at 18c/l, the buyers of quota would require the price of milk to remain above 25-26c/l in order to break even.