Promising outlook for the sheep sector
Falling production costs should lead to rising incomes for sheep farmers this year and in 2016
With Irish lamb prices largely unchanged from 2014 and reduced production costs due to lower feed and other input prices, the gross margin per hectare earned by Irish sheep farmers is forecast to be higher this year than in 2014.
The EU and Irish lamb price outlook for 2016 is relatively stable. There is the possibility of some modest weakening of European lamb prices as increases in EU production of lamb outpace growth in EU lamb consumption.
In 2016 the negative impact of possibly lower lamb prices on profitability of sheep production should be outweighed by the positive impact of lower input costs. Feed, energy and fertiliser prices are all expected to be lower in 2016 than in 2015.
The EU is a deficit market in sheep meat with consumption exceeding production, with the balance met by imports from the rest of the world. Each year imports make up close to 20pc of the sheep meat consumed in the EU.
This significant dependence on imports from the world market distinguishes the EU sheep meat market from most other EU agricultural commodity markets.
In contrast to the situation on cereal, butter and SMP markets, the internal EU price for lamb remains significantly higher than the prevailing world price for lamb (the New Zealand price).
Most imports of lamb into the EU are from New Zealand and enter the EU under what are called tariff rate quota (TRQ).
This system and high over-quota tariff rates largely protects EU sheep meat markets from the negative effects of world price movements.