FARM INCOMES

2012 incomes are more likely to fall than rise

Last week Teagasc held its annual economic prospects for agriculture conference. Strip away the feelgood factor that surrounds farming at the moment and you emerged with a view that farm incomes in 2012 are more likely to fall than to rise - except in the case of pigs, where a rebound in prices and a reduction in feed costs is strongly indicated. But, in the other mainline enterprises the forecasts were for an easing in prices and for a continuation of cost pressures.

This combination applied most clearly in dairying and tillage - the sectors that enjoyed the highest income increased in 2010 and 2011.

The margin slippage forecast for dairying is real. A 7% decrease in price coupled with continuously increasing fertilizer prices is, if the forecasts are accurate, set to reduce the net margin by 7.5c/l or from €991 to €683 per ha. Of course as we have seen before, forecasts may turn out to be wildly wrong but if the €683 is correct it reduces the net margin to the same as 2010 and somewhat less than 2008.

The results in tillage can be wildly different from the forecasts. The green harvest price for 2012 forecast was put at €145. Exactly the forward price quoted by Glanbia two weeks ago. Since then prices have hardened but sensibly Fiona Thorne gave a range of possible prices that varied from as low as €113 to a high of €214. Such a range looks absurd, but given the swings we have seen in the last three years coupled with a strong worldwide harvest in 2011 that allowed some build up of stocks, the huge range of possible prices has some validity.

Where they end up is obviously of critical importance to individual farmers in the individual year, but the long term message is equally important. Participation in the world market which is where we now are for all the main commodities is subject to enormous price change in the short term. The implications for running a farm business are real - high borrowing may work but in an era of such possible volatility it can be high risk.

At the moment the broad agricultural sector is paying down debt and to some extent building up deposits. But there is a pent up wave of investment waiting to happen on dairy farms. Farmers are planning to again invest significantly in upgrading their farms and facilities in 2012 but it would despite the favourable medium and long term outlook for the sector be unwise to assume that 2011 set the minimum income that can be expected in the future.

The Teagasc/FAPRI economic team while low key are rightly recognised as being competent and realistic. See pages 14-15