P/E ratio up to 90 for a suckler farm in Munster, 19 for dairy
Earnings per hectare are close to only one 90th of the price of land in Munster, according to the new figures from Teagasc’s National Farm Survey and Teagasc’s analysis of the agricultural land rental and sale market, in conjunction with the Society of Chartered Surveyors of Ireland.
To calculate this price to earnings ratio, divide the income per hectare of €263 on a suckler farm or €265 on a sheep farm into the €24,300 per hectare (€9,800 per acre) average 2014 non-residential land price in Munster (from the farmland rental and sale market analysis).
Land in Leinster (excluding Dublin) averaged €27,000 per hectare.
These prices are for lots under 50 acres, and have risen about 25% in four years.
Prices in Connacht/Ulster have tended to fall, averaging €17,000 in 2014.
Larger lots were as much as 10% cheaper, and prices for larger lots have remained static.
Residential land was more expensive, in all areas.
With last year’s highest ever average dairy income of €1,252 per hectare, the price to earnings ratio in Munster was over 19. This is relatively high. But if you bought Glanbia shares this week, the price to earnings ratio would be over 36, or nearly 25 for shares in Kerry Foods.
By these standards, land is not so expensive.
The Teagasc/SCSI analysis showed the cost of renting grazing land in 2014 from €444 per hectare to €300 in Connacht/Ulster. Not cheap — but affordable for an average dairy farmer earning €1,252 per hectare.
The National Farm Survey report contains only data. There is no discussion of likely future trends. However, in the land prices analysis, there is some discussion by Teagasc economists of likely future trends in farmer incomes. For 2015, they predicting a 25% fall in milk prices, and only 5 to 10% growth in milk volume. In addition, there is the superlevy bill of €69m to be paid. Dairy farm income could fall below €30,000 per farm in 2015, a slump of more than 50%.
I believe these comments are pessimistic, but dairy incomes will certainly fall.
Firstly, the increase in milk supply is likely to be more than 15%. Data just been published by the Central Statistics Office shows the April milk supply is up 14.8%.
World dairy markets are certainly well down on 2014, though most experts consider that the long term prospects for dairy are good. IFA has calculated market return per litre (before processing costs) from the Irish product mix at 32.62 cents in May. That compares with 42.69c 12 months previously — a fall of 24%. So the Teagasc prediction of a 25% milk price slump may not be far out.
Teagasc predicts that changes in margins in cattle enterprises in 2015 will be “very small”, sheep margins will decline by 9%, and cereal margins will “improve slightly”.
The two reports may be accessed online in the www.teagasc.ie website under publications.
