Little change in milk production costs expected

Dairy margins and farm incomes reached record levels in 2017, with substantially higher milk prices and minimal cost inflation.

However, Irish farm milk prices will fall back gradually in 2018, predicted Teagasc researchers at the Outlook 2018 conference on Economic Prospects for Agriculture in early December.

Overall, little change in milk production costs per litre in 2018 relative to 2017 can be expected. Based on forecast production levels, output price and input cost movements, dairy margins per litre and per hectare are likely to fall in 2018 compared with the extremely high 2017 level.

Average net margins are forecast to be about 11.8c per litre, or €1,400 per hectare, in 2018.

With global dairy production set to outpace consumption growth in 2018, and dairy commodity prices likely to weaken as a result, it is forecast that the annual average Irish milk price will fall by 10% in 2018, relative to the 2017 level, bringing the annual average milk price to 32.3c per litre.

The discussion of production costs in 2018 is complicated by the likely increase in milk production on many farms, and in national milk production.

Following the estimated 8% increase in production in 2017, further growth of 4% is forecast in 2018, with a slight increase of 1% in the dairy enterprise’s land base.

Assuming normal weather conditions in 2018, feed expenditure per head on dairy farms is expected to remain stable, given that it increased substantially in 2017.

Animal feed prices are driven by Irish cereal harvest prices (for the previous year and current year) and the prices of imported feed.

These members of the Carbery Freener Dairy Farms group attended an advisort session at UCC in mid-December

Cereal prices last harvest were up 5% on the 2016 level. International harvests across much of the main production regions have been high for the fifth year in succession.

The volume of dairy feed used per head appears to have increased significantly in Ireland in 2017, by about 10%, reflected in an estimated 5% increase in milk yields.

Assuming normal weather in Ireland in 2018, and with a declining milk price, feed volume requirements per head for grassland enterprises are expected to be broadly similar to 2017 on farms continuing to increase milk production.

Farmers should see a bit of an increase in feed prices in the first half of 2018 and perhaps again at the harvest time, with international weather conditions likely to determine exactly how grain and feed prices move at that point.

An increase in feed prices of 2% is forecast for 2018, plus an increase in feed volume of 1% per head.

Allowing for a 2% increase in dairy hectarage, this would give rise to a 9% increase in feed expenditure on a per hectare basis. Given the assumed 4% increase in milk output, expenditure on feed is estimated to increase by 7% on a per litre basis in 2018.

Fertiliser prices are expected to rise 5% in 2018. With fertiliser sales having already increased substantially in 2017, a stable usage volume is forecast for 2018.

This would mean total fertiliser expenditure increasing 5% on a per hectare basis.

No change in agricultural contracting charges is forecast, leaving total pasture and forage costs per hectare up about 5% in 2018 relative to 2017 (2% on a per litre basis, if production increases 4%).

Electricity prices are assumed to increase 4% in 2018, and increased milk production could leave expenditure per hectare on energy and fuel up 5% in 2018.

It can be expected that wage inflation will pick up slightly in 2018 as the labour market tightens further. Therefore an increase in wage rates in 2018 of 2% is forecast.

The increase in the general inflation affecting other farm costs in 2018 is forecast to be 2% on a per hectare basis. However, on a per litre basis, these other direct costs would be up just 1%.

Total fixed costs for the farm are assumed to remain unchanged.

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