Volatility will be the main issue facing dairy next year
However, this must be put in the context of a massive fall in 2015 incomes, despite an estimated 10% increase in output volume and significant improvements in constituents.
We can look back at 2015 as a good year: production conditions, weather and grass growth were exceptionally good, quotas came to an end allowing for volume growth which inflated milk cheques after March, and strong constituent performance also sustained farmer payout levels, masking falling base milk prices.
Efforts by co-ops to support milk prices also contributed to making 2015 a better year for farmers.
However Teagasc tell us that 2015 milk prices fell by 24%, margins per litre by 50%, and margins per hectare by 45%.
Superlevy fines, even staggered over three years, contributed to eroding margins. Input cost trends varied, but production costs only fell very marginally, and much of this because of dilution of fixed costs across larger volumes.
We farmers will start the New Year with base prices which have fallen by 18% in 12 months, with constituents which in January are typically 16% below October levels for protein and over 7% in butterfat, lower volumes than in recent months, a whole new set of input bills to face and a global dairy market which could take some time to come back into balance.
The Teagasc predictions for a very modest 1.5c/l milk price increase, and a 1.7c/l margin increase in 2016 are heavily dependent on a sufficiently rapid market recovery impacting farm gate prices for at least some of the peak. While this is most certainly possible, it is not guaranteed.
Teagasc have also wisely factored in less favourable weather resulting in greater feed usage.
So, in 2016, farmers could be looking at a marginally better position than in 2015 across the whole year, but will first face cash flow shortages during the spring.
Managing this type of variability of costs, prices and weather conditions is difficult even for the most efficient farmers, especially where they have made investment commitments for expansion.
There has been a lot of talk about volatility solutions, but ultimately little actually delivered outside of some index-linked, fixed-milk price contracts to give farmers ready access to genuinely helpful options.
It is high time we saw a more urgent engagement from stakeholders, especially co-ops and Ornua.
They must come together promptly to offer farmers supplying all co-ops real milk price hedging options for 2016 supplies. Within the Dairy Forum and in direct meetings with co-ops after Christmas, IFA will continue to demand urgent action in this area.
Banks must also ensure that all their dairy farmer customers are offered flexible working capital and investment funding options priced at realistic and internationally competitive levels.
IFA has discussed this with all banks, and has also met with other potential providers of competitively priced funding. Minister for Agriculture Simon Coveney must challenge EU Agriculture Commissioner Phil Hogan to obtain access for farmers to low cost funding through the European Investment Bank (EIB).
In our General Election Manifesto, IFA will press hard for government to examine in earnest tax solutions which allow greater individual control for farmers in the face of highly variable incomes, challenging assumptions on state aid rules.
Teagasc are right to expect a recovery in markets in 2016, and if it happens sufficiently soon to take in some or all of our peak milk, farmers may fare even better than they predict.
But volatility is here to stay and 2016 must be the year when all stakeholders act in unison to provide solutions in the best interest of farmers.
I see this as the most important issue the IFA National Dairy Committee will be driving over the coming months.
