Farmers look to the future rather than mulling over last years’ performance — which is why Teagasc’s mid-year Situation and Outlook report is often more important for farmers than the annual Teagasc National Farm Survey.
The Situation and Outlook report doesn’t project much beyond the end of the current year.
For 2016, it makes pretty grim reading.
It is negative for dairy, beef, sheep and tillage.
On milk, the report points to a stabilisation of dairy prices and demand recovering, but high stock levels which may slow price recovery in the coming months.
Any recovery in prices at this stage will do little to bring up the average price for 2016, given Ireland’s mainly spring calving profile.
On a positive note, the report confirms reductions in feed, fertiliser and energy prices, and with rising output (albeit at a reducing rate), there should be some increase in cost efficiencies.
But the overall result for 2016 is expected to be a drop in profitability of 60-80%, compared to 2015.
Based on the National Farm Survey for 2015, dairy farmers had a gross margin of €62,141.
A drop of 60% would see average income drop to €24,856.
On cattle farming, the prospect of slowing EU and UK demand, and weaker sterling, are likely to result in lower cattle prices for the remainder of 2016.
There is likely to be some reduction in the costs of production with lower feed, fertiliser and energy costs, but not enough to prevent a dip in profitability.
Gross margins are, according to the report, expected to dip by 10% for the full year.
Based on average gross margins of €27,453 for cattle farmers in 2015, it’s likely that family farm income for cattle farmers is likely to dip to just under €10,000 for 2016.
For sheep farmers, weakness in sterling is likely to undermine prices for the rest of 2016.
However, increasing supplies and lower costs should go some way to protecting margins, with an expected drop in gross margins of 4% compared to 2015.
For tillage farmers, less than ideal weather conditions early in the growing season for Ireland’s main tillage crops is predicted to result in a drop in yields.
Meanwhile, bumper world cereal production is putting downward pressure on prices.
The drop in both yield and prices are together likely to result in a drop in family farm income on specialised tillage farms to as low as €20,000 for 2016, according to the report.
The tillage situation is dire, with farmers using their EU subsidies to subsidise loss-making grain production on their own farms, and rented land unlikely to generate any profit.
Of course, farming is cyclical, and profitability will return, when markets re-balance (nothing cures low prices better than low prices).
By default, some operators will exit, more will cut down production, and reduced prices will stimulate demand.
Regardless of the farming enterprise being carried on, each farmer must do what they can to examine their own business carefully.
By comparing your farm to others in your sector, you can see where you are doing well, and where there is capacity to improve profitability, by increased sales, reduced costs or a mixture of both.
Make use of your accountant, by asking how your farm income, costs and profits compare to others in your sector.
Over the longer term, farmers must look seriously at the future prospects of continuing within their chosen sector. Albert Einstein is quoted as having said the definition of insanity is doing something over and over again and expecting the same result.
The current Teagasc Situation and Outlook report outlines how negative things are, but it is within our own capacity to change what we do, to ensure we are insulated from the depths of cyclical troughs.
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