Average family farm income will rise 5% next year, Teagasc said this week. Margins in milk and tillage will rise, according to its Annual Review and Outlook 2017. Sheep margins will hold steady, thanks to the new Sheep Welfare Scheme. But margins for cattle and beef farmers will fall because of lower prices.
Average family farm income will rise 5% next year, Teagasc said this week. Margins in milk and tillage will rise, according to its Annual Review and Outlook 2017.
Sheep margins will hold steady, thanks to the new Sheep Welfare Scheme. But margins for cattle and beef farmers will fall because of lower prices.
There could be slight upward pressure on some inputs. Feed and fuel prices will rise towards the end of 2017, but fertiliser prices will be lower.
Average family farm income was static in 2016, Teagasc says.
Read more on Teagasc's overall outlook for 2017
Average 32.2c/l in 2017
Dairy farmers will hope that the Teagasc modelling for 2017 is accurate. It says that milk price will increase by 20% in 2017, bringing the annual average to 32.2c/litre (CSO actual fat and protein) and average dairy farm income to exceed €70,000, economist Trevor Donnellan said.
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Following the estimated 5% increase in production in 2016, further growth of 6% is forecast in 2017.
This expansion protected margins in 2016 and will be key again in 2017, Donnellan said. “There is evidence that farmers have increased output without increasing overhead costs to the same extent.” The increase in efficiency was due to having more cows rather than higher yield per cow.
Based on a production increase of 6%, net margin will increase by 78% to an average of €1,413/ha. On a per-litre basis, net margins are forecast to increase by 73% to an average 12.4c/l.
“Many farmers in expansion mode will achieve record incomes,” Trevor Donnellan said.
Costs per hectare are forecast to increase by 5%, while costs per litre are forecast to increase by 2%, to an average of approximately 21.35c/l.
Read more on Teagasc's dairy outlook
Brexit
Cattle farmers will hope that the Teagasc modelling for 2017 turns out to be overly pessimistic. It finds that prices for finished cattle will fall 12% and prices for young cattle 10%. Costs will fall, Teagasc economist Kevin Hanrahan said, but only marginally.
A key reason for lower prices is sterling weakness arising from Brexit. On this, Hanrahan noted: “A more benign outcome on exchange rate would give a more benign outcome on prices.”
But if prices go as he has modelled, gross margin per hectare on single suckling will fall by 14% to €402/ha. That fall is moderated by receipt of payments under the Beef Data and Genomics Programme. Gross margins on cattle finishing will fall 19% to €364/ha.
Growth in demand for beef across the EU is “weak to anaemic”. EU production of beef will increase, driven by higher numbers of dairy cows.
Read more on Teagasc's beef outlook
Sheep welfare payment
The outlook for Irish and EU lamb prices for 2017 is negative. Weakened sterling will make UK lamb more competitive. Lower beef prices will also hit sheepmeat.
However, the Sheep Welfare Payment Scheme in 2017 will result in a small lift in gross margin from mid-season lowland production to €568/ha.
Spending on feed will be stable, while spending on fertiliser will decline.
Read more on Teagsc's sheep outlook
Grain futures
Grain futures indicate that 2017 harvest prices will be up about 8%. Markets expect a return to trend yields in 2017.
In addition, prices for key inputs such as fertiliser and seed are expected to decline. Fuel prices could rise. The net effect is that gross margins for spring barley and winter wheat will increase by over €100/ha, and winter barley by over €200.
Nonetheless, the average farmer will continue to make a negative market-based net margin in 2017, losing €30/ha after all costs.
Read more on Teagasc's tillage outlook
Pigmeat prices
Teagasc is forecasting a price decrease of 2% for pigmeat in 2017, to 146c/kg. This will be the result of a 2% increase in EU production.
Feed cost will remain steady. The bumper harvests in 2014, 2015 and 2016 have resulted in a significant build-up of global cereal and soya bean stocks. This will generate stable feed prices until mid-2017.
Read more on Teagasc's pig outlook
Brexit is big danger
Brexit is likely to result in slower growth in incomes in the UK and that will slow growth in Irish food exports to the UK and weaken farm prices here, Teagasc economist Kevin Hanrahan said. Key issues are sterling weakness, new trading rules after Brexit and loss of CAP funding.
“There is an increasing view that weakening of sterling is structural and likely to stay,” Hanrahan said.
If the reduction in the EU budget that follows Brexit is not filled by remaining member states, the result will be a 10% cut in direct payments to Ireland.
Under a worst-case scenario on future trading rules between the EU and the UK:
Beef to suffer a 10% price shock, with beef incomes falling 37%.Milk prices would fall 5% and dairy incomes 20%. Sheepmeat would fall 5% and sheep incomes 21%.Cereal prices would fall by 1%. Read more
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Full coverage: Teagasc outlook 2017
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