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Wednesday 21 November 2018

Dairy farmers facing a 50pc hit on incomes

The full impact of this year's extreme weather won't become clear until next year, but the lesson of 2018 is that successful dairy expansion will be achieved by the cautious rather than the carefree, writes Trevor Donnellan

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Trevor Donnellan

At the outset of 2018 the main concern for Irish dairy farming was the anticipated fall in milk price - when would it happen, how bad would it be and how long would it persist?

That question has largely been answered at this stage. Milk prices fell in 2018 and the reduction has been more or less in line with expectations. A difficult production season in Europe and New Zealand has prevented the decline in prices from being worse.

Relatively modest increases in production costs were anticipated for 2018, with prices for feed, fuel and fertiliser also expected to rise a little bit.

However, the real story of 2018 has been the weather. At a recent agri-food industry event, a speaker said he had spent much of the first half of 2018 praying for fine weather and the second half of the year praying for rain.

Weather-wise it has been a year of two halves, each coming with its own problems.

The trouble began with the long winter of 2017/18, which depleted fodder reserves and led to increased feed use in the first quarter of 2018.

A brief period of 'normal' weather followed and then we had the dry spell, which quickly turned into a drought. Soon the silage-making calendar was torn up, grass growth collapsed and feed mills were working round the clock.

Irish milk production, which had been expected to increase once again in 2018, began to slip, with monthly production in July 3pc below the same month in 2017.

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While it is difficult to generalise for all dairy farms, feed use has increased dramatically in 2018, silage ground has been grazed and any winter fodder stock that had been produced is already being fed to cows.

While there has been an improvement in grass growth of late, there is still an awful lot of catching up to do and feed use will remain elevated for the rest of the milking season.

From a farm income perspective, the end result for 2018 is not going to look pretty.

Given the highly unusual nature of the year, it is impossible at this point to provide an accurate estimate of the combined impact on farm income of the reduction in milk price, lower milk deliveries and increase in input usage.

Much of the evidence we have to hand is anecdotal and it will be well into 2019 before we have all the data gathered to assess the full effect of the weather on incomes in 2018 (and for that matter 2019).

The best guess at this point is that on average Irish dairy farm income in 2018 could be down to half its 2017 level - perhaps in the €40,000 to €50,000 range.

The effect of the adverse weather on individual farms will depend on factors such as location, soil type and stocking density.

Looking ahead to 2019, weather conditions will still be a major factor.

Farmers will be praying for a short winter, but even a normal winter is likely to be problematic from a cost perspective, with feed requirement likely to be higher than normal.

From the dairy market perspective, the lower than anticipated growth in global milk production in 2018 will be of benefit in firming up milk prices in 2019.

As things stand it does not look like there will be any major movement in milk prices in 2019, with a period of stability likely.

Assuming 2019 brings a return to a normal, or near normal, grass growth season, Irish dairy farm incomes should recover on the basis that input expenditure will drop back from the elevated levels of 2018.

There will still be a need to rebuild silage reserves for winter 2019 and beyond to create a feed buffer on individual farms to withstand any future weather extremes.

It is hard to anticipate at this point what the Irish milk production volume for 2019 might look like as this will depend in part on changes in the dairy cow population, which may suffer to some extent due to culling in the current production season as a means to manage feed requirements.

Trevor Donnellan is a Teagasc economist; email: trevor.donnellan@teagasc.ie

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