Last week, we looked at milk prices for the last 10 years north and south of the border. We discussed the variation in milk price from one year to the next and the gloomy prospects some are predicting for 2015.

The clear message from last week’s report is that milk price reached a new, higher level, for the last five years, but the predictions for 2015 show a much lower level similar to 2008/2009 prices.

Output is only half of the story, so this week we take a look at farm input prices for some of the main inputs used on farms right across Ireland, as compiled by the Central Statistics Office (CSO).

I’ve selected some of the main variables used on farms and graphed them over the last seven years (Figure 1).

EU regulations stipulate that there is a base change every five years, so 2010 is the base year for all input price indices (prices back to 2007 have been re-calculated based on 2010).

Results

The one-line summary is that most of the inputs used on farms have increased in price by 25% to 30% over the last five years.

This applies for the main variable costs used on farms such as feed, fertilizer and energy.

For those dairy farms north and south of the border using large quantities of each of these inputs, the costs of each have increased substantially.

High input/high output dairy systems have no choice but to use large quantities of each of these variables. Why?

Because they are normally making large quantities of high-quality silage for winter milk production and feeding large quantities of meal per cow to maximise the genetic milk potential of high volume cows.

These operators have seen costs rise out of control over the last number of years (as indicated by the CSO data), but they have been saved by a relatively high milk output price.

Spring milk producers have also seen costs rise substantially, but they too have been saved by the relatively high milk prices over the last five years.

What is going to happen next year? Output prices are predicted to drop substantially – hopefully they won’t drop to the extent predicted.

At the same time, we mustn’t ignore the facts. Therefore, what can farmers do on input prices?

Feed costs

Feed prices have declined to some extent, but not nearly as much as Irish farmgate grain prices have decreased.

Again, maybe there will be some further downward movement on feed prices, but remember also that cheap grain will drive US milk production on intensive feedlot systems, so impacts on global prices will be significant.

In terms of meal feeding quantities next year, if these poor milk prices are realised, then it will be a year to minimise feeding and get as much grass as possible into cows. The price of a kilo of meal fed will simply cost more than the subsequent kilo of milk produced.

Fertilizer

Oil prices have dropped through the floor, but fertilizer prices have remained stubbornly high. Some experts predict for different reasons that fertilizer prices will remain high.

Some suggest that getting raw ingredients for fertilizer production out of North Africa are difficult and holding up prices. However, all the indicators of falling fertilizer prices are in play.

Bottom line the advice is buy small and short when buying fertilizer for the coming year. I’d have small quantities of fertilizer on hand for boosting early grass and then look at the market again in March for the first main round of fertilizer for grazing and first-cut silage.

Some expenses, such as veterinary and maintenance repair costs, have flat-lined and cost much the same as in 2013 as they did in 2010.

Other costs

One could get very depressed if the trend, as outlined by Figure 1, continued, while at the same time output prices decreased. There will need to be a re-adjustment of input prices at farm level or the business will suffer very badly next year.

Winter milk producers, like many of the farmers I met in Balmoral last week, are in a difficult position. They are producing high-cost milk (at high input prices) with milk prices for many down around 23 to 24p/l (29c/l). Spring milk producers will be looking at minimising meal input next spring because of the poor milk prices and trying to maximise the use of grazed grass. Remember, while we can’t do that much about milk price, we can restructure loans, we can question costs and we can stress-test the farm’s business plan to try to get through what is predicted to be a very rough period in output prices.