Alarm bells are ringing
Milk, meat and grain prices continue to thrive, but could rising costs turn the boom into a bubble? Darragh McCullough reports
The memories are too fresh to forget. In 2008, we were all told commodity prices had entered a new era, when booming demand from a growing world population would cause a paradigm shift in food prices. Milk soared to 40c/l and grain surged to €270/t. Inputs surged in tandem, with bulk CAN prices touching €375/t in the summer of 2008.
Farmers were told not to worry, since they'd still make it at the other end.
Then the bubble burst. The financial binge the world had embarked on finally caught up with the man on the street. He stopped buying. Suddenly, the price of everything began to fall even more quickly than it had risen. CAN prices collapsed to as little as €150/t only months after they had hit record highs. Demand for dairy product, grain, meat and virtually every output that Irish farmers relied on fell off a cliff. Milk price halved, while grain prices fell to a third of their peak. Beef and lamb languished in the doldrums.
Suddenly farmers are noticing the warning signs again. Global milk prices are up another 7pc in the last week on already strong base prices. Beef and lamb producers are looking at some of the best prices in years, while grain producers are still trying to get used to the fact that their grain has doubled in value in the past 12 months.
A growing concern among farmers now is whether steep rises in input costs are going to take all the good out of higher output costs. Food industry analysts and economists are also wondering just how far rising food prices can be pushed on a fragile world economy that is supposedly only beginning to recover from one the biggest financial crises ever.
Appropiately, this whole issue will be a central theme of the Teagasc Outlook Conference in Portlaoise on January 20.
"It seems that 2011 is beginning to look like 2008," said Teagasc economist Trevor Donnellan. Rising input costs mean that relatively good output prices need to rise even further to maintain margins and profitability at farm level.
"While this might be a possibility in milk and cereals due to widespread rising demand for these products, it is not as likely in beef or lamb since consumption is trending downwards in Europe for these products."