The New Year is now fully underway and this is the busy paperwork season for us with milk quota, with this year’s deadline on the 31st March.
I will resist commenting on the misquotes, misrepresentations and then further misquotes from these misquotes, in respect to the sudden increase in milk quota trading.
Perhaps one needs to assess what the market is saying (rather than anyone else) and consider a more balanced assessment as to why there continues to be a market in milk quota even though we have known for years that it would be abolished.
The first question is why farmers, up to Christmas this year, were still interested in paying for milk quota knowing it was to be abolished; the “writing was on the wall” in 2008, six years ago. In 2008 one question was, was there time left before 2015 for the fortunes of the dairy industry to change and the price of the milk to rise high enough that would encourage an increase in production?
Could we ever be over quota again with the extra allocations of milk quota and the “soft landing”? The other question was whether due to production elsewhere in Europe politicians would change their mind and need to reinstate milk quota to control production after 2015? A lot of quota agencies gave up trading at this point but we always felt that however slim the chances, the CAP reform has a tendency to bring in changes that are always “out of sync” with the actual market. Stranger things have happened. Trade in milk quota has remained constant throughout this period, year in, year out since 2008. This illustrates that there was either a healthy cynicism as to what politicians might do or a belief that things could turn round for the dairy industry before milk quota was abolished. Therefore it would be wrong to assume that the recent activity in the market since Christmas is a new phenomenon and is merely an ‘agent created flurry’. The other facts are that December production reached levels not seen since 1994/95 and there are no further reallocations of quota from the EU next year. Avoiding the temptation to provide predictions as an agent we prefer to report what we are hearing in the market place. What our milk quota desk is hearing, headed up by Julia Clark, is that while people accept there is no chance of being over quota this year they are fearful of the country being over produced next year. Whether this is justified or is sensible it should not be forgotten that farmers are generally as a business group quite cautious.
The other fear we hear of is still based on that underlying distrust of politicians, even at this late stage, to do a U-turn or reintroduce milk quota where there is a connection with current quota. There is a feeling in the market that milk production across the union nations will not just “sort itself out” on its own without some kind of production control again. Some EU countries are actively working towards increasing national production by 50% after March 2015. Other farmers when they ring remind us how suddenly milk quotas where introduced to restrain rising milk production. Greed and fear are of course always the engines of most markets and sometimes logic is “thrown out of the window”. Markets overheat or overcool for seemingly no good reason. People act as a herd and influence each other. It may well though be that milk quota will be long gone before new production controls have to be reintroduced and they will have to start again from scratch. We may well look back and see the sudden rise in milk quota prices at the beginning of 2014 as a brief flutter before milk quota’s demise in a year’s time for ever. Alternatively we may look back as we have with numerous property market “boom and busts” asking ourselves what triggered the revival in the milk quota price however illogical it was, merely it seemed driven by fear.