This week we carry the Irish Farmers Journal/KPMG Milk Price Review for 2017. Jack Kennedy and Eoin Lowry crunch the figures not only looking at milk price paid to farmers but also the financial performance of each processor over the course of the year. While farmer attention will naturally focus on the average milk price, factors such as operating profit, investment strategy and the funding model around this also require close analysis – especially when trying to assess the resilience of the business and future prospects.
Overall, the sector performed well in 2017, with processors delivering a milk price rise of 8.8c/l on 2016, while at the same time most recorded good growth in operating profits. It is worth noting that at an average of 35.86c/l (ex VAT), the price paid by processors last year is almost 2.5c/l ahead of the average paid over the five years prior to the abolition of quota – challenging the narrative that increasing the Irish milk pool post-quota would erode the farmgate price.
It should be acknowledged that our co-op structure and the commitment to process all additional milk allowed farmers to fully capitalise on the abolition of quotas. However, with the equivalent of a €274 per cow deviation in the price paid by the top and bottom processors in 2017, the ability to add value to this enlarged milk pool is clearly not equal across all.
Once again, we see the resilience of the Carbery model shine through, with the west Cork co-ops leading the charge at the top of the league – this is despite also achieving the highest operating margin across all processors of 6.1%.
An ability to pay a leading milk price while at the same time achieving a five-year average operating profit equivalent to 4c/l, compared with those at the opposite end of the price league achieving an operating profit closer to 1c/l, shows how Carbery is delivering on both fronts for farmers – returning a strong milk price while generating surplus cash for either reinvestment or to support the milk price into the future.
As our analysis shows, if some of the co-ops at the bottom end of the league tables were to match the west Cork price, their operating profits would be in negative territory. Clearly not all processors have the scope to support the farmgate price in a downturn.
Meanwhile, boosted by two retrospective payments in 2017, each in the region of 1c/l, Glanbia farmers received the strongest milk price outside the west Cork co-ops. However, this will come as little comfort to these same farmers who are currently receiving a milk price that is lagging behind other processors by 2-3c/l.
Expectation
There is clearly the expectation among suppliers that a similar retrospective top-up payment will be announced by Glanbia for milk supplied during the first six months of 2018. If the processor is to repeat the performance achieved in 2017, the payment would have to be significantly above the 1c/l paid the year previous, given the extent to which it has lagged behind during the peak production months. Worryingly, some would suggest that with a requirement to deliver a 3.2% profit margin, the scope for a retrospective payment this year may be limited.
If this proves to be the case, questions will be asked as to what has gone wrong inside the country’s largest and most invested processor. Glanbia’s performance in the 2017 leagues is unlikely to distract from the intense focus there will be on the company when it sets its June milk price in the coming week.
It will be an important marker for recently elected chair Martin Keane, who will not only be expected to correct the milk price in June but also give suppliers some sight of a retrospective top-up for the first six months of the year.
Meanwhile, in the context of ongoing negotiations between LacPatrick and Lakeland, shareholders should ask both chairs for a commitment as to how any deal will improve milk price performance given where both co-ops currently feature in the leagues.
Opportunities from an early harvest
Edmond Leahy and his son Jack cutting a field of Cassia winter barley at Kilmagner, Co Cork. \ Donal O' Leary
Farmers across the country are battling drought or near-drought conditions. Even on heavy soils, grass growth rates have crashed in recent days as soil moisture deficits in these areas surpass 50mm. Along the east of the country, farmers are seeing grass covers wither as moisture deficits come close to 100mm.
The warm and dry conditions have also seen the harvest roll in much quicker than expected, with combines moving in the southern half of the country. Early yield reports are variable, but overall winter barley seems to have handled the drought conditions quite well. Winter wheat and spring barley crops are under more stress, particularly in low organic matter soils.
As Andy Doyle details the early harvest presents an opportunity to plant a catch/fodder crop. The fast-growing Italian or Westerwolds ryegrasses are an option, especially where it won’t be possible to graze a catch crop in situ.
With many livestock farmers making a dent in already depleted winter fodder supplies, we clearly need some joined-up thinking in relation to how we can rebuild fodder reserves in the months ahead. Driving productivity from every acre of land will be key when conditions improve.
Co-ops are ideally positioned to link up their tillage and livestock farmers and provide a trading platform.
Impact WTO tariffs would have on Irish exports
As the risk of a no-deal Brexit increases, Phelim O’Neill looks at the impact WTO tariffs would have on agricultural exports moving across the Irish Sea.
Most stark is the fact that 80vl trim (the core ingredient for the UK’s large mince and burger market) would almost double from €3.70/kg to €7.20kg. The cost of cheddar would increase by 50% to €5.03/kg.
Clearly, neither farms nor the agri-food sector can prepare for such a scenario.
The only way the Irish and indeed the EU agri-food market can be protected in the wake of a hard Brexit is through the EU introducing market support measures. Displacement of Irish beef from the UK market isn’t just an Irish problem. The displacement of 250,000t would collapse the entire EU 27 beef market through distressed sales.
Commercial farmers making their voice heard
Pedigree breed societies continue to lock horns with ICBF on the future direction of beef breeding.
The latest spat comes as breeding trends finally move in the right direction. In recent years calves per cow per year have increased from 0.79 to 0.85, delivering commercial farmers an extra 60,000 calves per annum.
Meanwhile, calving interval has fallen from 407 days to an average of 393 days, with the other key profit drivers such as age at first calving all going in a positive direction.
Concerns have been expressed as to the effect the BDGP scheme is having on the quality of progeny from the suckler herd. However, as Adam Woods reported last week, this is not supported by the facts, with carcase conformation being maintained while age at slaughter and carcase weight have both improved.
There is no doubt these trends are being driven on the back of providing commercial farmers with increased information on which to make breeding decisions. While it is easy to see why some may have an interest in shutting down this information flow, commercial suckler farmers need to make their voices heard as to the value it is delivering. Now is a time for cool heads and for all parties to focus on what is right for the commercial suckler farmer. Breeders who don’t like change will like irrelevance even less.
This week we carry the Irish Farmers Journal/KPMG Milk Price Review for 2017. Jack Kennedy and Eoin Lowry crunch the figures not only looking at milk price paid to farmers but also the financial performance of each processor over the course of the year. While farmer attention will naturally focus on the average milk price, factors such as operating profit, investment strategy and the funding model around this also require close analysis – especially when trying to assess the resilience of the business and future prospects.
Overall, the sector performed well in 2017, with processors delivering a milk price rise of 8.8c/l on 2016, while at the same time most recorded good growth in operating profits. It is worth noting that at an average of 35.86c/l (ex VAT), the price paid by processors last year is almost 2.5c/l ahead of the average paid over the five years prior to the abolition of quota – challenging the narrative that increasing the Irish milk pool post-quota would erode the farmgate price.
It should be acknowledged that our co-op structure and the commitment to process all additional milk allowed farmers to fully capitalise on the abolition of quotas. However, with the equivalent of a €274 per cow deviation in the price paid by the top and bottom processors in 2017, the ability to add value to this enlarged milk pool is clearly not equal across all.
Once again, we see the resilience of the Carbery model shine through, with the west Cork co-ops leading the charge at the top of the league – this is despite also achieving the highest operating margin across all processors of 6.1%.
An ability to pay a leading milk price while at the same time achieving a five-year average operating profit equivalent to 4c/l, compared with those at the opposite end of the price league achieving an operating profit closer to 1c/l, shows how Carbery is delivering on both fronts for farmers – returning a strong milk price while generating surplus cash for either reinvestment or to support the milk price into the future.
As our analysis shows, if some of the co-ops at the bottom end of the league tables were to match the west Cork price, their operating profits would be in negative territory. Clearly not all processors have the scope to support the farmgate price in a downturn.
Meanwhile, boosted by two retrospective payments in 2017, each in the region of 1c/l, Glanbia farmers received the strongest milk price outside the west Cork co-ops. However, this will come as little comfort to these same farmers who are currently receiving a milk price that is lagging behind other processors by 2-3c/l.
Expectation
There is clearly the expectation among suppliers that a similar retrospective top-up payment will be announced by Glanbia for milk supplied during the first six months of 2018. If the processor is to repeat the performance achieved in 2017, the payment would have to be significantly above the 1c/l paid the year previous, given the extent to which it has lagged behind during the peak production months. Worryingly, some would suggest that with a requirement to deliver a 3.2% profit margin, the scope for a retrospective payment this year may be limited.
If this proves to be the case, questions will be asked as to what has gone wrong inside the country’s largest and most invested processor. Glanbia’s performance in the 2017 leagues is unlikely to distract from the intense focus there will be on the company when it sets its June milk price in the coming week.
It will be an important marker for recently elected chair Martin Keane, who will not only be expected to correct the milk price in June but also give suppliers some sight of a retrospective top-up for the first six months of the year.
Meanwhile, in the context of ongoing negotiations between LacPatrick and Lakeland, shareholders should ask both chairs for a commitment as to how any deal will improve milk price performance given where both co-ops currently feature in the leagues.
Opportunities from an early harvest
Edmond Leahy and his son Jack cutting a field of Cassia winter barley at Kilmagner, Co Cork. \ Donal O' Leary
Farmers across the country are battling drought or near-drought conditions. Even on heavy soils, grass growth rates have crashed in recent days as soil moisture deficits in these areas surpass 50mm. Along the east of the country, farmers are seeing grass covers wither as moisture deficits come close to 100mm.
The warm and dry conditions have also seen the harvest roll in much quicker than expected, with combines moving in the southern half of the country. Early yield reports are variable, but overall winter barley seems to have handled the drought conditions quite well. Winter wheat and spring barley crops are under more stress, particularly in low organic matter soils.
As Andy Doyle details the early harvest presents an opportunity to plant a catch/fodder crop. The fast-growing Italian or Westerwolds ryegrasses are an option, especially where it won’t be possible to graze a catch crop in situ.
With many livestock farmers making a dent in already depleted winter fodder supplies, we clearly need some joined-up thinking in relation to how we can rebuild fodder reserves in the months ahead. Driving productivity from every acre of land will be key when conditions improve.
Co-ops are ideally positioned to link up their tillage and livestock farmers and provide a trading platform.
Impact WTO tariffs would have on Irish exports
As the risk of a no-deal Brexit increases, Phelim O’Neill looks at the impact WTO tariffs would have on agricultural exports moving across the Irish Sea.
Most stark is the fact that 80vl trim (the core ingredient for the UK’s large mince and burger market) would almost double from €3.70/kg to €7.20kg. The cost of cheddar would increase by 50% to €5.03/kg.
Clearly, neither farms nor the agri-food sector can prepare for such a scenario.
The only way the Irish and indeed the EU agri-food market can be protected in the wake of a hard Brexit is through the EU introducing market support measures. Displacement of Irish beef from the UK market isn’t just an Irish problem. The displacement of 250,000t would collapse the entire EU 27 beef market through distressed sales.
Commercial farmers making their voice heard
Pedigree breed societies continue to lock horns with ICBF on the future direction of beef breeding.
The latest spat comes as breeding trends finally move in the right direction. In recent years calves per cow per year have increased from 0.79 to 0.85, delivering commercial farmers an extra 60,000 calves per annum.
Meanwhile, calving interval has fallen from 407 days to an average of 393 days, with the other key profit drivers such as age at first calving all going in a positive direction.
Concerns have been expressed as to the effect the BDGP scheme is having on the quality of progeny from the suckler herd. However, as Adam Woods reported last week, this is not supported by the facts, with carcase conformation being maintained while age at slaughter and carcase weight have both improved.
There is no doubt these trends are being driven on the back of providing commercial farmers with increased information on which to make breeding decisions. While it is easy to see why some may have an interest in shutting down this information flow, commercial suckler farmers need to make their voices heard as to the value it is delivering. Now is a time for cool heads and for all parties to focus on what is right for the commercial suckler farmer. Breeders who don’t like change will like irrelevance even less.
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