As I settle into the Christmas routine, which pretty much means doing as little farming as possible and instead spending more time with family and friends, I will reflect on 2014 as being one of the truly great farming years. Everything seemed to fall into the right place at the right time, weather, milk price, grass growth etc.

Unfortunately facing into 2015 the picture doesn’t look quite so rosy. Teagasc have predicted that milk price is set to fall to somewhere around 27c/l. The last time they predicted a milk price like this was in 2009 and it certainly went much lower.

Trying to predict milk price is a difficult task, but looking back over the last 20 years at a basic level, milk price has generally trended upwards over an 18 month period, followed by a downward trend over an 18 month period or thereabouts.

Milk price cycle

In August 2012 milk price started to rise, peaking at the end of 2013, while price has now been dropping since January of this year. So it looks like milk price will bottom out just as we are hitting peak milk production next year. Looking forward it could be the spring of 2017 before we see milk prices anywhere close to this year’s average.

Over the past few years since the abolition of quotas was announced, Irish dairy farmers have been consistently told that we will be able to withstand volatility better than most other countries as we are “low cost producers”.

The recent Teagasc cost of production figures that were published would argue the opposite. A breakeven cost of production of 25c/l not including debt, labour or tax, which would push total costs close to the mid 30’s c/l is hardly low cost!

Intervention

As an average group of farmers we are poorly positioned to increase our top line figures next year. If milk price was to fall to the intervention base of 21c/l the average irish farmer would return 22.5c/l based on the national average fat and protein of 3.94 and 3.36 respectively. Contrast that with New Zealand where Fonterra have predicted a payout equivelant to 20c/l, they have a herd of cows that on average produced a litre of milk containing 4.74 fat and 3.80 protein last season. In irish terms at those solids it would return 7c/l above the base, or 28c/l at intervention prices. A huge difference between two averages and certainly the difference between staying in business or not.

Budgeting

It is fair to say that any farmer budgeting at a milk price above 28c/l over the next few years would need to address how not achieving that base price will affect their business.

On a personal basis I started farming in 2008, my first full year was 2009 and it was a baptism of fire. It has however set the tone of how we have operated over the last 5 years. The budget has always been done at 28c/l. We have developed a simple system and it is that system that will guide us through next year.

*Sean O'Donnell is a grass based dairy farmer, Nuffield scholar and the 2014 young farmer of the year. You can follow him on Twitter @seanod281.