Farm incomes set to fall sharply in 2015

Income could drop by 25% in the new year, following an estimated 2% dip this year.

Average farm incomes are expected to fall significantly in 2015 after being largely stable in 2014, according to Teagasc economists writing in their annual review. The economists predict a mixed bag in possible income developments in the farming sectors.

An anticipated sharp decline in prices, reflecting developments on global dairy markets, will see the average income earned in milk production reduced substantially.

Teagasc economist Trevor Donnellan said average milk prices in 2015 are expected to fall to 27c per litre, a reduction of over 10c per litre on the average for 2014. He said this follows several years of very good incomes. It is likely to have a significant impact on dairy farm incomes in 2015, with a reduction over 50% possible on some farms.

Globally, 2014 has been an excellent year for grass-based dairy producers, due to favourable weather conditions. Grain-intensive dairy farming has also benefited from lower feed prices this year.

Dr Thia Hennessy of Teagasc said high prices factored with a lower cost base created a very profitable environment for milk production. The stronger than anticipated increase in production in 2014 has seen the emergence of a surplus in dairy products on the international market.

However, Mr Donnellan said these negative effects are expected to be temporary. Lower milk prices will lead to a slowdown in the expansion of production globally in 2015. But the market is set to begin to recover in the latter half of the year.

He said Irish dairy farmers are gearing up for a major expansion drive and the dip in profitability next year will be an unwelcome, though expected, development. “Volatility in dairy prices is now a fact of life and farmers are taking steps to manage that volatility. The National Dairy Conference demonstrated that farmers, the processing industry, banks and State services are working together to take steps to manage that volatility,” he said.

Meanwhile, incomes in the beef sector in 2015 are expected to improve on the back of rising beef prices and stable production costs.

Looking ahead to 2015, Dr Kevin Hanrahan said prospects for the beef sector were positive, with calf and finished cattle prices forecast to rise and a further minor reduction in production costs also likely to occur.

Despite the forecast improvement in profitability, incomes in beef production remain the lowest among farming in Ireland. Incomes on sheep farms are set to remain static.

“While lamb supplies are expected to remain tight, demand for lamb is set to remain weak given the continuing recession across much of the eurozone,” he said. Teagasc says cereal prices are expected to rise in 2015, but tillage farmers will be aware the exceptional yields achieved in 2013 and 2014 might not be repeated.

Dr Fiona Thorne said income prospects rest on growing conditions through the year. “If a reversion to trend yields happens in 2015 this will mean the average cereal farmer in Ireland will struggle to cover total costs of production next year,” she said.

Looking at average farm income across the sector in 2015, Dr Hennessy cautioned that the outlook is heavily influenced by the forecast decline in dairy farm incomes.

She forecast that, averaging across the entire farm sector, income could be down by up to 25% in 2015.

Overall, farm income in agriculture is estimated to have fallen by just over 2% in 2014, according to Teagasc figures.

The decrease is partly due to the well-documented drop in Irish beef prices in 2014. Prices for milk and cereals paid to farmers also fell due to higher than anticipated global production. However, these price drops were offset by increased production of these commodities due to the good weather in most of 2014.

A reduction in production costs on livestock farms also helped to counterbalance some price reductions, due mainly to a decrease in feed costs. Lamb prices improved in 2014 due to limited supplies, while pig prices fell due to the impact of the Russian embargo on imports.

Irish Cattle and Sheep Farmers Association president Patrick Kent said the forecasts for 2015 predict a big drop in dairy incomes but no real light at the end of the tunnel for the cattle sector. The sheep sector is lightly more positive.

“The figures demonstrate why drystock farmers are unhappy, and confirm that most are eating into the Single Payment and the agri- environment schemes and less favoured area payments in order to survive.

“As these payments are falling rapidly on a lot of farms, the outlook is very gloomy and much worse on some farms than the headline figures might suggest,” he said.

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