Teagasc predicts increase in milk price, challenges for beef
In its year-end review and outlook for the year ahead, issued in Dublin’s RDS, Teagasc anticipates the annual average milk price will rise by 20% in 2017 relative to the 2016 level, bringing the annual average milk price to 32.2c per litre.
However, the Irish beef sector is facing into a tough year. Beef supplies across the EU are forecast to increase next year.
Demand for beef in the EU is not particularly strong and EU beef prices are likely to fall by up to 10%.
Given that the UK market is very important for Irish beef exports, the weakness of sterling will also have an adverse impact on beef prices in Ireland, which are forecast to decline by 12%.
Analysis produced by Teagasc economists shows farm margin fell on most farms in Ireland this year.
Teagasc economist Trevor Donnellan said: “Even though milk prices fell by an estimated 11%, Irish milk production is estimated to have increased by about 5% in 2016. While dairy production costs fell, Irish dairy farm margins were lower in 2016 due to the drop in the value of milk sales.
“However, a late-season rally in milk prices, along with the additional volume of milk produced this year, has limited the drop in dairy farm income in 2016. Dairy sector competitiveness indicators produced by Teagasc also show that Irish dairy farms continued to be one of the lowest cost producers internationally in 2016, despite the fall in margins.”
With all sectors impacted by the fall in sterling due to Brexit concerns, Teagasc’s 2017 projections are coloured by the fact that supplies of milk, beef, and grain internationally have been running ahead of demand, which has led to a fall in farm prices.
On the positive side, the report notes lower production costs in 2016 offset some of the effects of falling output prices. For the second year in a row, lower oil prices, led to a significant fall in fuel prices. There was also a gradual decline in fertiliser prices over the course of the year.
Increased supplies of cow beef and continuing slow growth in demand, led to lower cattle prices in 2016 as compared to 2015.
Kevin Hanrahan, an economist with Teagasc, said: “In Ireland the reliance on the UK market means that the fall in sterling contributed to the estimated 5% drop in Irish finished cattle prices.”
On single suckling farms, the receipt of the Beef Data Genomics Programme payments will offset negative impacts of lower prices on margins, which will stay largely unchanged on 2015. On cattle finishing farms, the lower output prices in 2016 are reflected in lower gross and net margins.
Sheep prices in 2016 declined marginally compared to 2015. Taking account of lower costs of production in 2016, margins earned on sheep farms are estimated to have increased by 3%.
A fall in Irish cereal yields, along with low cereal prices, following another bumper global harvest, resulted in a year of low margins in the Irish cereals sector in 2016.
Fiona Thorne, Teagasc economist, said: “The average cereal farmer will struggle to return a positive market based net margin in 2016.”
Michael McKeon, of the Teagasc Pig Development Department, said: “Pig farmers had a year of two halves, with very low profitability in the first half of the year, offset by a significant improvement in the second half as China increased its pig meat imports.”
In spite of the fall in margins, overall, agricultural income in Ireland in 2016 is likely to be broadly in line with the 2015 level, as the annual receipts from the Basic Payment Scheme and GLAS should be higher in 2016 than in the previous year.
A slowdown in growth in global milk production should mean dairy margins will increase in 2017, with milk prices 20% higher. Irish milk production should also increase, providing a boost to the dairy farm bottom line.
Tillage farmers will be hoping for a better year in 2017 but this will be contingent on the level of the global grain harvest. High global grain stock levels mean that even if yields are lower, any upward movement in cereal prices will be limited.
Overall, the increase in profitability in the dairy sector in 2017 is forecast to be sufficient to offset a significant decline in beef farm income, leaving overall agricultural income in Ireland about 5% higher in 2017.
