Farm Ireland
Independent.ie

Friday 21 September 2018

Green shoots? Is the medium term farm outlook positive...

The fodder crisis fallout is far from over but there are strong grounds for optimism about the short to medium term farming outlook

The one spanner in the works could be diesel costs which are running 36pc ahead of last year for contractors
The one spanner in the works could be diesel costs which are running 36pc ahead of last year for contractors

Ronnie Bellew

Is the glass half full or half empty as we hit what for many farmers will be the busiest and most productive months of the year?

As ever, the answer will depend on what sector or interest group is answering the question.

The more cautious commentators will point to high debt levels, falling milk prices and soaring diesel costs as evidence that the aftershock of the extended winter and fodder crisis is set to reverberate throughout the year.

The optimists will argue that with beef prices running at up to €80/hd ahead of 2017, sheep prices showing double digit growth on last year, and exports to the UK buoyant, all the fundamentals are in place for farmers to trade their way out of trouble.

Debt

Reducing and clearing debt will the immediate priority for those hardest hit by the fodder crisis and the news on this front is both negative and positive depending on how it's interpreted.

Farmer debt to merchants is at "an all-time high" but it is not a source of serious concern, one of the country's leading compound feed mills has insisted.

Pat Ryan of Nenagh-based Liffey Mills said debt levels among farmers this spring had been driven "purely by the volume of feed sales", which he said were 30pc higher than 2017 levels for the first four months of the year. "Debts are high but this has been pushed on by demand for feed. If milk and cattle prices hold it will be fine, and I'd see the debts being washed out over the summer," he said.

Also Read


Jimmy Brett of Brett Brothers in Kilkenny said debt levels had increased this spring but he maintained that farmers were continuing to meet payment schedules in the vast majority of cases, despite the squeeze in cashflow from recent milk price cuts.

Feed sales remained strong, with many dairy farmers retaining high input regimes through the breeding season. "The month of May has been like a normal March," he said.

However, ICMSA president, Pat McCormack, has called on the Minister for Agriculture, Michael Creed, to bring forward a low-interest loan package with a specific measure targeted at farmers experiencing cashflow problems.

"Farmers have two major priorities at present - to secure adequate fodder supplies for the coming winter period and to ensure their financial sustainability. It is essential that they are supported in every way possible through what will be a very challenging period," he said.

Meanwhile, Brendan O'Malley of the INHFA has encouraged farmers struggling to pay merchant credit and other bills built up during the winter and spring to apply for the Farm Assist scheme where necessary.

"The INHFA got clarity from the Department of Employment Affairs and Social Protection in relation to the means test assessment for the Farm Assist Scheme," said Mr O'Malley.

"Account is taken of any exceptional circumstances so as to ensure that the assessment accurately reflects the current situation, and clearly allows farmers that have incurred extra costs this spring resulting from fodder shortages to be included in the most up to date means test.

"I would encourage any farmer that is struggling financially to apply for a Farm Assist Payment to their local social welfare office," he maintained.

"Many farmers are struggling to cope both mentally and financially, and they need support and certainty in order to get through the next number of months," he said.

Farmer sentiment

Some of the headline findings from Bank of Ireland's latest AgriPulse survey are pessimistic, although the survey was based on opinions canvassed in mid-April when the fodder crisis was still a raw wound.

"The mood was subdued in April, with farmers downgrading their assessment of the current situation," noted Dr Loretta O'Sullivan, Group Chief Economist, Bank of Ireland.

"Sentiment has dropped across a number of fronts which isn't surprising given the recent environment. And Brexit is clearly weighing heavily, with seven in 10 respondents feeling that it will negatively impact their business," she said.

The survey found that 67pc of farmers had higher input costs and 25pc reported falling profitability over the last 12 months.

Despite these gloomy statistics, there was an upbeat outlook on investment.

One in four farmers surveyed expect to increase investment on the farm in the next 12 months, led by dairy and tillage farmers.

"Replacing and maintaining worn-out buildings, equipment and vehicles is a key focus, with purchasing livestock and investment in new farm buildings, land and equipment and vehicles on the cards as well. The majority are factoring in an outlay of up to €50,000."

Diesel

The one spanner in the works over the summer could be the impact of higher diesel prices.

The Association of Farm & Forestry Contractors in Ireland (FCI) estimates that diesel costs for contractors have increased by 36pc on last year.

"We are concerned that this cost increase will impact on the volume of silage harvested as our members will be forced to increase their silage harvesting charges accordingly," said FCI chairman, Richard White.

The FCI has called on the Government to consider two options that would make the silage harvest more cost-effective for contractors and farmers:

Reduce the VAT rate on agricultural contracting services from 13.5pc to 9pc for a period of two years. This would allow farming to work out from the forage difficulties presented by the spring of 2018. This would give the farmer a €5/acre saving, while the contractor would still be charging €95 + VAT for the service.

Remove the Carbon Tax from agricultural diesel. This would allow farm contractors to maintain silage harvesting charges at 2017 levels. Given the €0.20 per litre price increase between 2017 and 2018, this means an additional cost to Irish farming of €57.6m due to higher oil prices. Eliminating the Carbon Tax on agricultural diesel would reduce this cost increase to Irish farming by the order of €14.4m.

Milk prices

The milk price cuts by the major processors over the last two months have hit hard. As we report this week, the divide between the highest and lowest per litre milk price can make a difference of up to €2,200 in earnings for the average 90-cow herd during April alone.

However, with global dairy markets rallying, any further price cuts by the co-ops will be increasingly difficult to justify.

IFA national dairy chairman Tom Phelan said there could be no doubt that dairy markets are now recovering.

"International quotes for dairy commodities have been firming for weeks due to slower milk growth in the EU and lower volumes from New Zealand. Tellingly, this week, the EU Commission sold 42,000t of SMP out of intervention at an improved price.

"Co-ops must now stop talking down milk prices, and start leveraging those higher returns for suppliers," said Mr Phelan.

Livestock prices

Beef factory prices at this week's base for bullocks of €4.15-4.20/kg are only 5-10c/kg ahead of this week last year. Underlying confidence in the outlook for the trade, however, appears to be stronger given that 21,000 extra cattle went through the system up to May 12 as opposed to the same period in 2017.

This confidence has made its way down to the marts with the 500kg+ animal the main beneficiary. The price of forward stores is running €80/hd ahead of last year's prices.

With the value beef exports to the UK up €26.5m in the first quarter and live shipping resumed to other markets, the question some commentators are posing is are there enough good cattle to go around?

Brexit

Finally, there is the elephant in the room for the entire Irish economy. The landscape appears to change from week to week, but former IFA economist Con Lucey has carried out a detailed analysis of the impact for Ireland of the three likely options for Britain's exit from the EU.

In his paper published by the Institute of International and European Affairs yesterday, Mr Lucey writes that the "optimum outcome" would be a customs union agreement between the EU and UK combined with an agreement on regulatory alignment.

However, a 'no-deal' outcome and reliance on World Trade Organisation Rules "would be particularly problematic."

The UK could also hold the no-deal threat over the EU during Phase 2 of the withdrawal negotiations.

"In this regard, Ireland may come under pressure from the UK to support its trade proposals because of the potentially very damaging implications for this country of a 'no deal' alternative," warns Mr Lucey.


For Stories Like This and More
Download the FarmIreland App


Indo Farming

Get the latest news from the FarmIreland team 3 times a week.





More in Agri-Business