2013 review

The financial performance of Irish farms this year closely mirrored the weather and farming conditions.

2013 was a year of two halves, with the wonderful weather of the last six months dimming the memory of the extremely difficult spring and early summer.

In the same way, the expense incurred during the fodder crisis, when animals consumed resources as voraciously as forage and meals, has been offset by the excellent performance off good grass in ideal growing conditions since the weather turned in June.

In addition, good prices for milk beef meant that dairy and beef finishers clawed back all the losses sustained in the spring.

For grain farmers, the excellent yields achieved counterbalanced the drop in harvest price.

The big losers were suckler farmers who sell their young stock on. The high factory prices did not find their way back through the mart ring, with weanling prices back on admittedly very high 2012 prices.

Sheep farmers saw their income eroded by increased costs, again mainly due to high feed costs. Pig farmers, after a very difficult couple of years, are finally achieving viable margins. In the final quarter of 2013, the margin over feed has exceeded 50c/kg.

2014 Outlook

Inputs

Feed prices will largely be determined by the performance of the 2014 crop. In 2013, excellent growing conditions meant a bumper harvest, the largest ever recorded.

Normal growing conditions would mean a volume drop in the order of 20%. At present, futures prices for grain and protein crops are similar to the 2013 harvest price.

This would all indicate a feed price decline in the order of 10%.

Fertilizer costs will drop by over 20%, with usage and price both dropping. The fertilizer price is also expected to fall by 10% to 15%, depending on product, in 2014.

Increased competition among the handful of main fertilizer companies, allied with a predicted drop in oil price, are the main drivers.

Oil is essential to nitrogen production, and price is coming under pressure due to the increased availability of oil and gas because of fracking, particularly in the US.

Usage will fall 10% next year, but will be higher than in years prior to this one.

Teagasc director Gerry Boyle highlighted that the profile of soil sampling would indicate a need to replenish soils with P and K in particular. Any push in advance of quota abolition would only drive fertilizer usage higher.

There will be a 3% to 4% drop in fuel. Other inputs will remain largely unchanged.

Sectoral reports

Dairy

Dairy farmers are enjoying prices at the top of the market at present.

For 2014, there will be a drop in input costs, but it is likely that the average price over the full year will be lower. The longer prices are maintained at or very near current high levels the more money dairy farmers will make next year.

The forecast is for an overall drop in milk price over the year of 10%. Feed use, which saw meal exceed one tonne/cow, will fall sharply, leading to a reduction in costs of 3c/l.

With prices currently at 38c/l, a 10% drop would lead to a small drop in margin, in the order of 3%. Overall, family farm incomes on dairy farms are predicted to increase by 6%, to €60,000.

Beef

There was a break in the usual close relationship between weanling prices and factory prices. This saw weanling prices down 16%, even as prices for finished cattle rose by 6%.

Tight global beef supplies and sanitary trade restrictions mean imports will not undermine the EU beef market, Kevin Hanrahan forecasted.

He sees a reversal of the key influences of 2013 next year, with weanling prices rising by 8%. This will close the gap on factory prices, which will increase by 3%, and costs, particularly feed costs, lower.

This will result in single suckling systems gross margins up 60%, off a very low base, next year. Incomes will increase by 30% to €11,000.

Cattle finishing farms will have an income double that, of €22,000, on average. This would represent an increase of 22%

Sheep

Prices dropped slightly in 2013, by 1.5%. However, the main factor influencing 2013 incomes was the costs incurred. Feed prices hit their highest point at the time of highest usage.

In addition, lack of growth meant that expensive forage and meals were fed for much later than normal, with a 20% rise in feed costs. This all means an estimated drop in income of 14%.

The forecast of Teagasc’s Kevin Hanrahan is for margins and incomes to rebound in 2014. The prospects are that production in both New Zealand and Australia will be down.

Australia is currently building up their sheep flock, so will be retaining rather than killing ewe labs. This should reduce price pressure in Europe from imports, with a forecast lamb price rise of 3%.

Input costs should return to normal levels, leading to a gross margin of €100/ha (400/acre), and a 25% increase in average income to €19,500.

Grain

Fiona Thorne is forecasting that incomes will be reasonably steady next year. While price indications currently show a similar market to this harvest, input costs will fall, by up to 10%.

Yields are unlikely to match the fantastic 2013 crop, leaving margins similar to this year.

Price volatility means the price range for next year varies from €130 to €230 per tonne. Selling forward can insulate against that volatility. Global reserves remain low, relative to overall output.

Fiona showed that, in 2013, the average forward sold price for winter wheat was significantly higher than the harvest price. Farmers who traded early received €189/t as opposed to an average harvest price of €162. She pointed out that the reverse experience occurred in 2012, when a harvest price surge allied to penalties for poor grain quality proved a double blow to those who sold forward.

Pigs

The forecast for the pig sector is again dominated by input cost reductions. Feed is the dominant cost, accounting for 75% of all production costs.

Teagasc’s Michael McKeon predicts an 8% drop in feed prices. On pig prices, Michael expects stability for the first half of 2014, which is necessary considering sustained losses over three years and the investment required because of new animal welfare building specifications.

Forecasting is fiendishly difficult

Every year, Teagasc predicts what farmers in each sector can expect in the year ahead in terms of output level, value, input costs, gross and net margin, and income. It’s a very brave venture.

In 2009, Teagasc predicted that net margin on cattle farms would drop by €67/ha on average. The following year, they estimated it was actually -€161, and predicted a a relative recovery, with a net margin of - €118/ha for 2010. A year later, they estimated the net margin to have been -€172/ha, actually a small worsening.

For 2011, they predicted a net margin of -€160, it turned out to be €-79.

As globalisation of farm commodities has deepened over the last decade, events way beyond the control of Irish, and indeed European, farmers, agribusiness and political leaders affect markets, prices, and incomes.

With few market management tools, it is commodity traders, influenced by the prevailing sentiment of the hour, who set the market, both for inputs and farm produce.

In addition to all this, weather can override all other factors. Just imagine if the first six months of 2013 had been followed by the second six months of 2012; it would have been the worst Irish farming year on record.

Global weather patterns influence overall supply/demand balance – as shown by grain markets over the last 18 months.