Income gap between dairy and other sectors widens

A lot of farmers will be puzzled to hear average farm incomes are estimated to have risen by 37% in 2017.

Scratching their heads will be beef, sheep, tillage and pig farmers. Yes, their incomes have thankfully risen in 2017, but no, not by the colour of 37%.

What has happened is that the dramatic recovery in milk prices has given a big upward boot to dairy incomes. They have risen by about 83% in 2017.

The other sectors have seen small income rises. Margin per hectare of dairying raced ahead of the other sectors in 2017 – see graph.

So big was the lead of dairying in 2017, an average income figure for all farmers is becoming less useful, Teagasc economist Trevor Donnellan noted this week.

Average dairy farmer income this year will be €90,000, the Teagasc Review and Outlook 2018 meeting heard. This figure led Teagasc director Gerry Boyle to describe 2017 as historic.

When milk quotas were ending, dairy farmers were warned about volatility. Now they know what it means.

Donnellan said incomes for beef, sheep and tillage farmers are less volatile because they consist largely of EU direct payments which are consistent from year to year.

Teagasc is predicting cooler dairy markets in 2018, with prices 10% lower and average dairy farm income dropping by €10,000.

It sees beef margins rising due to higher beef prices, tillage unchanged and sheep and pig margins lower due to lower prices. Average farm income, useful measure or not, will drop by 6%.

Inputs rising

There will be some upward pressure in spending on the major inputs in 2018. Slight rises are forecast in feed and fuel prices; fertiliser prices could rise by 5%.

But if weather behaves then volumes of feed used will be steady, except on expanding dairy farms. Teagasc does not expect any rise in fertiliser volumes used.

The Teagasc economists noted that feed costs in 2017 are not fully documented given the fodder and straw shortage that has emerged over recent weeks on livestock farms.

Milk – a good outlook

Teagasc is predicting an easing of prices and margins – but it will still be a good year for dairy farmers if it all goes to plan. Average milk price in 2018 will fall by 10% to 32.3c/l including VAT. Average price in 2017 was 36c/l.

Global milk production will outpace consumption growth and that will trigger the lower commodity prices, Teagasc economist Emma Dillon said.

EU milk production will rise by as much as 2%, with farmers responding to firm prices and low feed costs. US production could also rise by 2%. New Zealand output is likely to rise by up to 3%.

EU consumption should continue to rise, particularly for cheese and skim. But sky-high prices are hitting demand for butter.

The skim market remains weak, with a big overhang of intervention stocks.

Here, milk output will rise by a further 4%. Fertiliser and fuel costs will rise slightly. Economies of scale mean cost per litre will be more or less unchanged at approximately 21.5/l. However:

Small increase in beef prices

Teagasc economist Jason Loughrey warned that there is “acute uncertainty” over the outlook for cattle and beef in 2018, because euro to sterling exchange rates remain vulnerable to Brexit scares. The UK takes over half of our beef exports.

Nonetheless, he proceeded to make predictions, basing them on recent currency exchange rates.

There seems little prospect of a return to the 70p to €1 rate of 2015.

He forecast that prices for both young and finished cattle will be 3% higher in 2018. Average beef price will be in the range €3.95/kg to €4/kg. This is based on:

Direct costs are expected to rise by 2% for single suckling and 4% for beef finishers, due to higher prices for fertiliser, feed and other inputs. Gross margins for single suckling will rise by 4% to €455/ha and for finishing by 5% to €619/ha.

When concluding, Loughrey warned his forecast “could go up in smoke” if currency rates swing significantly.

Sheep margin to decrease

EU sheepmeat production is expected to increase in 2018, as are imports. As a result Irish and EU lamb prices are expected to fall by 3%. Here, costs of production will rise slightly.

Gross margin from lowland lamb enterprises are expected to decline.

Sheep Welfare Scheme payments will moderate the decline in margins. But average gross margin from mid-season lowland lamb will decrease to €731/ha.

Net margin for the average lowland lamb enterprise will fall 20% to €224/ha.

Cereals steady

There are no indications that cereal prices will change dramatically between now and harvest 2018, Fiona Thorne reported. Futures markets indicate 2018 harvest price will be about 7% higher than 2017.

This can be explained by world grain stocks having decreased slightly in 2017 and an expectation of a return in 2018 to trend yields.

Costs of production on cereal farms are expected to rise in 2018, with the key inputs – fertiliser, fuel and seed – expected to rise.

Gross margins to rise

The result is that gross margins in 2018 are expected to rise slightly. The gross margin of spring barley is expected to be unchanged on 2017, winter wheat is forecast to increase by under €30/ha and winter barley by under €70/ha.

A key overhead cost, land rental, is also expected to rise. Therefore, the average specialist tillage farm will return a market-based net margin (ie ignoring direct payment) of €75/ha in 2018.

But about half of tillage farmers will make a net loss on a market basis.

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