Farm incomes for 2020 to hinge on the weather

Average family farm income up 7pc in 2019 thanks to reduced feed costs - and output prices look set for modest increases next year

Land of plenty: Production conditions returned to normal this year after the unfavourable weather of 2018
Land of plenty: Production conditions returned to normal this year after the unfavourable weather of 2018

Margaret Donnelly Here

The average family farm income in Ireland increased by an estimated 7pc in 2019, according to new figures from Teagasc - but the increase was due to a reduction in the use of feed and additional subsidies.

Figures from the Teagasc Outlook 2020, Economic Prospects for Agriculture show that farming in 2018 was dominated by unfavourable weather, but production conditions returned to normal in 2019.

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This led to a substantial reduction in the amount that dairy, beef and sheep farmers spent on animal feed this year. There were also cost savings due to lower fertiliser use, as well as lower spending on silage production in 2019.

However, price increases for animal feed and fertiliser in 2019 partially offset the cost savings relating to lower input usage.

The volume of milk and cereals produced in Ireland increased in 2019. However, the production of beef and sheep has been disrupted by the blockade of meat factories.

The African Swine Fever outbreak in China has resulted in a sharp increase in international pig prices, including in Ireland, returning the Irish pig sector to profitability this year.

However, prices for milk, beef and sheep were all lower in Ireland in 2019 compared to 2018.

Outlook 2020

And the weather will be the main determinant of farm incomes in 2020, the report states, with normal weather conditions to see feed and fertiliser prices reduced.

Milk prices are expected to remain similar to those of this year, while on the beef front prices of finished cattle are forecast to increase by 4pc, with prices of weanlings and stores forecast to increase by 2pc next year, albeit remaining well below the levels in 2016 and 2017.

Sheep margins earned in 2020 will continue to be boosted by the receipt of the coupled sheep welfare payment, while Irish cereal prices at harvest will be highly dependent on growing conditions globally.

Pig prices are forecast to rise by 28pc in 2020 to 215c/kg dwt. With pig feed prices likely to be up marginally, the margin over feed is forecast to improve to 103c/kg, up 56pc on the 2019 level.

BEEF

Last year, prices for most categories of finished cattle decreased by 6pc relative to 2018, with young bull prices declining by 9pc.

Lower volumes of finished cattle in 2019 have contributed further to lower market output value on cattle finishing enterprises.

According to the report, the introduction of the BEEP and BEAM schemes has contributed positively to gross output on single suckling farms.

In 2019, the average gross margin per hectare earned on single suckling enterprises is estimated to have increased to €413/ha.

In 2019, the average gross margin per hectare earned on cattle finishing enterprises is estimated to be €459/ha in 2019, up 9pc on the 2018 level.

EU supplies of beef are forecast to decline in 2020 and global beef markets are forecast to strengthen, with EU exports expected to rise in 2020.

The forecast for Irish finished cattle prices is a 4pc increase in 2020 relative to the 2019 level. Young cattle prices are forecast to also increase, with prices 2pc higher than in 2019.

Input expenditures on a per-hectare basis in 2020 are forecast to decrease on 2019 levels primarily due to lower feed prices, while fertiliser prices are forecast to decrease significantly.

The direct costs of production on single suckling enterprises are forecast to decrease by 3pc in 2020, while direct costs of production on cattle finishing enterprises are forecast to drop by 4pc.

In 2020, the average gross margin per hectare on single sucking enterprises is forecast to increase by just 1pc to €416/ha, while the average gross margin per hectare on cattle finishing enterprises is forecast to be 2pc lower at €450/ha.

SHEEP

While there were huge declines for EU sheep meat exports to Hong Kong last year, it was somewhat compensated for by increased exports to other destinations, leaving overall EU expected to stay relatively stable.

Prices on the European lamb market in 2019 were lower than in 2018, according to the report, and lamb prices in Ireland are back 5.6pc.

Gross margins per hectare for Irish mid-season lowland lamb producers are estimated to have declined in 2019 by 6pc.

In 2019 the average gross margin on mid-season lowland enterprises are estimated to be €693/ha.

The outlook for Irish and EU lamb prices for 2020 is stable, with global sheep meat prices projected to remain high.

Global production is set to increase, but at a slower rate than the last decade.

TILLAGE

An increase in international wheat and barley production across the key growing regions of the world, and a consequent increase in stocks in the EU, led to a decrease in cereal prices at harvest 2019, with on-account Irish harvest prices decreasing by between 20-30pc.

However, there was an increase in yields of the main cereal crops in Ireland in 2019.


Dairy growth set to continue despite fall in 2019 margins

A fall in production costs, a weaker milk price and an increase in milk production resulted in an estimated net margin of 11.1c/L last year.

This reflects an increase of 16pc year-on-year.

Following the estimated 6pc increase in production in 2019, further growth of 5pc is forecast in 2020.

It is forecast that the annual average milk price will be unchanged in 2020 relative to 2019. This would represent an annual average milk price of around 34c/L (CSO actual fat and protein).

Dairy farmers expanding production are assumed to benefit from some economies of scale.

Based on a milk production volume increase of 5pc, and an unchanged milk price, the forecast average net margin per hectare in 2020 is €1,514, an increase of 12pc on the estimated 2019 level.

The report goes on to say that assuming normal weather conditions in 2020, feed use per head on dairy farms is expected to remain unchanged. Feed prices are expected to fall by 5pc, resulting in a similar reduction in feed expenditure on dairy farms.

Expenditure on fertiliser will decrease in 2020, with fertiliser prices expected to fall by 7pc.

While oil prices are expected to fall slightly, fuel prices are forecast to remain unchanged due to an increase in the carbon tax.

In 2020, total costs per hectare are forecast to remain unchanged.

However, with a forecast increase in milk production of 5pc, total costs on a per-litre basis in 2020 are forecast to fall by approximately 4pc. On a per-litre basis, net margins are forecast to increase by 8pc in 2020, to an average of 12c/.

Global Outlook

Global dairy production growth is set to remain muted in 2020, but consumption growth is also expected to be slow.

Butter prices are forecast to weaken slightly, while protein prices should continue to recover, according to the Teagasc report.

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