Net margin per ewe falls to just €7/head in 2022

The average sheep farmer generated a return of just €7 per ewe in 2022. The poor financial performance was laid bare by Michael Gottstein, head of the Teagasc sheep programme, at Monday night’s national sheep meeting hosted by the IFA.

Michael presented the provisional figures analysed by the Teagasc ag economics and farm survey research section and outlined in Table 1.

The figures show that the net margin achieved on sheep farms in 2022 fell from a high point of €39/ewe in 2021 to €7/ewe in 2022.

The analysis completed is based on production costs collected from sheep farms taking part in the Teagasc National Farm Survey.

The average flock size on these farms was just under 7.5 ewes/ha equating to the gross margin/ha falling from about €288/ha in the region of €50/ha.

Financial analysis

Explaining the analysis in Table 1, Michael said the aim is for the figures in the green cells to increase (gross output, gross margin and net margin) while the aim is for figures in the red cells to have a minus figure. As can be seen, all figures apart from the gross output figure trended in the wrong direction in 2022.

The gross output figure which takes account of all sales increased by 7% on the back of a slight increase in farmgate lamb prices and an improved cull ewe trade.

Concentrate feed prices increased by €6 per head, but Michael cautions that the full extent of increased concentrate costs were not felt with prices in the early part of the year lower than the average across the full calendar.

The greatest increase in variable costs occurred under the heading; pasture and forage. The main increases here were higher fertiliser costs and contractor costs. The net effect of these changes was an increase in total direct costs of €31 per ewe and a reduction of €17 per head in the average gross margin per ewe.

Fixed costs also increased significantly, rising from €86 to €101 per ewe. Rising energy costs have a large role to play in reducing financial performance in 2022.

When combined with total direct costs, the cost of keeping a ewe in 2022 increased by €46 per head to average €208 per ewe.

This reduced the net margin per ewe from a high point reached in recent years of €39 per ewe to just €7/ewe.

Michael commented that the Sheep Welfare Scheme payment is included in the figures and essentially was keeping the net margin figure in the green.

2023 forecast

Michael highlighted that there is always a risk when forecasting future performance and this is especially the case given the volatility we have witnessed in input costs in recent years.

Leaving this aside, he said that the analysis completed by the Teagasc ag economics and farm survey research section predicts that there is unfortunately not likely to be any marked change to the financial performance of sheep systems in 2023.

Figure 1 demonstrates how costs have escalated in recent years.

It is predicted that fertiliser prices will remain on par to 2022 with usage also remaining similar leading to no overall change under the heading, pasture and forage.

Expenditure on sheep feed is expected to increase by 10% and this is due to sheep systems experiencing the full extent of the rise in concentrate costs across a full year with volumes fed expected to remain unchanged.

The one positive forecast is a reduction in energy costs, with fuel and electricity costs expected to be 11% lower in 2023.

With regard to lamb prices, the analysis predicts that Irish and EU lamb prices will remain steady despite global sheep meat prices expected to reduce marginally.

This supply forecast was reinforced by Seamus McMenamin, Bord Bia, in his market update which was covered in detail in last week’s paper. Seamus did, however, caution farmers to the potential of inflationary pressure on consumer spending potential.

Performance projections

The culmination of a 2% increase in output value, 4% increase in input costs and 1% lower gross margin (average €800/ha) is a 39% increase in net margin.

While this is a significant percentage, it is based on a small starting figure with the net margin per hectare rising to just €74/ha, or almost €10 per ewe.

The stark projections outline the devastating effect that Russia’s invasion of Ukraine has had on increasing input costs and eroding the gains from improved farmgate prices.

IFA national sheep chair Kevin Comiskey told those attending the meeting that the analysis shows how exposed sheep farmers are and that it backs up the IFA’s call for increased levels of support.

He took aim at three organisations citing that Minister for Agriculture Charlie McConalogue has failed to provide adequate support to sheep farmers with an increase of €2 per ewe in the Sheep Improvement Scheme not actually delivering any net gain to farmers when the cost of compliance with the genotyped ram action is taken in to account.

He called for more urgency from the Department of Agriculture, Bord Bia and factories in unlocking access to more markets and returning a better margin to farmers.

“Farmers were told that complying with electronic identification and the clean livestock policy would deliver greater market access and higher returns but this has not materialised. If sheep don’t get sufficient reward, we won’t be here in a few years.”