Covid-19 makes farm income forecasting more risky than ever

Covid-19 makes farm income forecasting more risky than ever
Pig farmers face the biggest income disappointment this year. Covid-19 may prevent their incomes reaching forecasted record levels.

A suggested decline of 26% in farm incomes is dramatic.

A decline of 57% could be described as catastrophic.

However, these recent projections by a Teagasc team of Covid-19’s impact on Irish agriculture were not forecasts.

Instead, the projections calculated what could happen, not necessarily what is most likely.

They was based on scenarios or assumptions like “if milk prices were to decline by 10%, 15%, or 20% compared with 2019, as a result of the virus”.

Economics was once christened the “dismal science”.

This honour may now have been taken over by the climatologists, but dire warnings are still typical of the economics profession.

But how likely are any of these scenarios to be fulfilled?

More than five months into 2020, we can look at the data on prices and output for these five months for guidance.

What has happened to prices so far?

The average price received for R3 steers for the first 21 weeks of the year was €3.59 per kg, 10c or about 3% lower than the same period last year.

Up to week 12, prices were sometimes higher and sometimes lower than last year.

But, from week 13, coinciding with the Covid lockdown, 2020 prices (up to week 21) have consistently been about 7% under 2019 levels, despite the number of cattle slaughtered at meat plants being 5% lower this year.

Covid-19 makes farm income forecasting more risky than ever
Teagasc economists looked at three scenarios of Covid-19 effects on farming. The implications for farm income were all negative, ranging from about 22% to 54% declines

compared to 2019, and from about 26% to 56% declines compared to pre-Covid forecasts for 2020 farm incomes.

Sheepmeat prices in week 21 were 19% higher than in the same week in 2019.

Over the 21 weeks, the average 2020 price was 7% higher than in 1919.

Lamb slaughterings in the year to date were 5% higher than in 2019.

There was no early evidence of a Covid-induced fall in sheep meat prices.

Instead, the gap between 2019 and 2020 prices widened in recent weeks.

The average price of pigmeat in 2019 was €1.65 per kg, boosted by a deficit in the world marketplace caused by African swine fever in China and elsewhere.

In 2020, the average price is €1.84, but it fell as low as €1.64 for the last week of May.

The latest price slump is almost certainly Covid-induced.

Milk prices in March and April were respectively 3% and 4% below those of 2019.

There are no indications in the futures markets for dairy products that traders expect substantial falls over the rest of the year.

While the coronavirus is an unprecedented event, and may yet have substantially greater impact (for example, if there is a “second wave” of infection), there is little evidence to date that the dire consequences in terms of price reductions envisaged in two of the Teagasc scenarios are likely to occur.

However, their third scenario may not be too far off the mark.

That considered the outcomes for farmers if:

n Cattle sheep and milk prices fall 10%, compared to 2019 (R3 steer price €3.23 kg exclusive of Vat; heavy lamb at €4.15/kg exclusive of Vat).

n Pig prices gain 13%.

n Grain prices gain 10% for wheat, barley price unchanged.

n Sales volume of cattle and sheep declines by 4% relative to forecast volume.

n Young cattle prices decline 10% relative to 2019.

Those changes would be enough to reduce farm incomes 22%, according to the projections by Teagasc economists.

Unfortunately, it’s a far cry from the forecasts of 2020 farm incomes made by Teagasc economists last autumn.

They predicted stable milk prices, and milk output up 5%, with lower feed and fertiliser prices helping to boost family farm incomes on specialist dairy farms by 9%.

Teagasc economists predicted finished beef cattle prices up by 4%, helping to increase incomes on cattle rearing farms 2%.

However, an income decline of 2% was seen on other cattle farms.

Sheep prices were expected to remain stable, with costs to fall, leading to an increase of 7% in incomes.

A 15% increase in incomes was expected for grain growers, due to a 5% increase in prices, and lower input costs,

After autumn weather prevented sowing of winter wheat and barley, projections were revised early this tear to a 10% wheat price gain, a 20% decline in cereal production, and a marginal decline in incomes.

Pig farming have proved the most unpredictable.

Prices were expected to average €2.15 per kg in 2020, but have instead slumped into the €1.60s.

The forecast record pig farm incomes of 2020 currently look a remote possibility.

Such are the risks of economic forecasting.

That was then.

We are now in an altogether different market and economic situation worldwide, arising from the effects of Covid-19 on employment, incomes and consumer sentiment.

No one, and certainly not economists, can say if we will have a benign result from this virus, with the country back to relative normality by October, or whether there will be a further lockdown later in the year.

Eamonn Pitts says the 2020 farm income outcome won’t be as dramatic or catastrophic as envisaged in two scenarios considered by Teagasc. But their third scenario may not be too far off the mark. Unfortunately, if it materialises, it could reduce the incomes of Irish farmers 22% this year

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