Commodity super-cycles are not new and farmers have seen it all before. Various index numbers of world agricultural prices have risen strongly over the last year, although some have yet to recover losses seen in earlier periods.

Grain prices worldwide have surged, as have prices for rapeseed oil and, more importantly for Irish farmers, returns from milk and beef have improved sharply. It would be nice to imagine that these developments signal an era of better margins but there are good reasons for caution. Aside, of course, from the familiar hazards of making long-term economic forecasts at all.

The world economy, led by recovery in the US and China, is doing better than had been expected and governments have been able to engage in prolonged emergency budget stimulus. This has permitted demand for agricultural commodities to hold up well and there has also been a boom in metals’ prices.

Grain prices worldwide have surged, as have prices for rapeseed oil and, more importantly for Irish farmers, returns from milk and beef have improved sharply

Copper has doubled in the last year as have some other “hard” commodities and freight rates have soared. It now costs up to €400/t to transport bulky items from China to Europe, versus one-third that figure a year ago.

There are idiosyncratic reasons for some of the price trends – some big beef exporters have endured drought-related supply shortfalls. There have been poor grain harvests and production outages in some copper mines.

There has also been an unexpected shortage of 40ft containers, with too many arriving in Europe and North America and not being returned to China. Chinese container manufacturers cannot keep up and have doubled their quotes. The expected rebound in oil and gas prices has added to costs, as has the disruptive effect of the pandemic on transport operations.

Chinese container manufacturers cannot keep up and have doubled their quotes

Easy money and low interest rates are also alleged by some commentators to have facilitated the speculative run-up in some markets.

Many of these influences will reverse themselves but nobody knows when or by how much, or in what sequence.

But it is well-established that agricultural markets exhibit, with a lag, improvements in supply following a spike in prices. This can come quickly for multi-harvest crops, more slowly for animal products with their longer breeding cycles.

The most famous of the latter is the “hog-cycle”, where US farmers are believed to expand breeding capacity in response to strong prices in such a way as to create a four-year endogenous cycle in prices, independently of demand fluctuations.

Should the COVID-19 emergency come to a benign conclusion, perhaps with the disease fading into the background as others have done, controlled through repeat inoculations like flu, the conduct of budget and monetary policy will alter.

Governments will seek to normalise, which will mean restraint on spending and tax increases, as foreseen in last Monday’s report from the Economic and Social Research Institute (ESRI).

The recent buoyancy in commodity prices, including farm prices, is partly due to special once-off factors but also to the unusual phase the developed economies have reached in the pandemic

It will also mean a withdrawal of the easy money policies, including the willingness of central banks to buy up government debt at low interest.

The current macro policy is an emergency response and will be discontinued when the emergency passes. The recent buoyancy in commodity prices, including farm prices, is partly due to special once-off factors but also to the unusual phase the developed economies have reached in the pandemic, with crisis policies in place as the vaccination programmes look likely to bring the crisis to an end.

Primary producers

Here in Ireland, there will be no effortless or long-term restoration of margins for primary producers when the current price upswing plays out. It might happen but it might not.

The political priority in a new climate policy, even if the worst mistakes are avoided, is not going to focus on enhancing farm incomes, except for rhetorical purposes.

Output prices will follow the swings and roundabouts of market trends as they have always done, since prices and margins will never heed the advice of agriculture ministers.

There will be more, not fewer, policy interventions, driven by European and global perceptions of a climate crisis, with an unavoidable component of emissions reduction targets for the farm sector.

In this country, as elsewhere in Europe, the brute reality is that farming is on the defensive.

With the recent developments in the UK, seeking trade deals with Australia and others who prefer a return to the cheap food policy, farmers are in line for a sharp lesson in the realities of the Brexit most of them foolishly voted for.

Over the summer we will see the Government’s climate action plans emerge from the evasions of rhetoric and targets into the broad daylight of specific measures. Herd limits and acreage diktats may be avoided and farmers should enjoy the margin boost while it lasts.