Improving farm output prices are likely to provide an increase in farm incomes in 2021, in spite of rising input prices, according to the Mid-Year Outlook for 2021 produced by Teagasc economists.
While a portion of the peak milk delivery season remains, if weather conditions remain favourable and milk prices hold, then the average income on Irish dairy farms in 2021 could exceed the record of €86,000 achieved in 2017.
The average income on cattle-rearing farms in Ireland is forecast to increase by 5% (€9,500) in 2021, while incomes on cattle other farms are forecast to increase by 4% (€15,300).
Incomes on sheep farms are set to be up by over 45% in 2021, to more than €27,300, due to exceptionally strong growth in output value, in spite of higher production costs.
This results from most positive lamb price dynamics, which are set to continue, with global prices having risen substantially.
Overall, the average farm income in 2021 across each of the farm systems is likely to be higher than would have been anticipated at the outset of the year.
Weather conditions through the first half of 2021 have not been ideal for grass-based systems, while conditions have favoured cereal crop development and potential yield.
The economic recovery from COVID-19 has led to some input price inflation, which has affected fertiliser and fuel prices.
Price increases for fertiliser and fuel were foreseen and largely reversed reductions in the price of these input items which occurred in 2020.
Feed prices have also been higher in 2021, reflecting the supply and demand conditions in the feed grains market over the past 12 months.
This increase means that feed prices are at their highest level in over five years.
There have been some signs of increased sales volumes for inputs, but these increased sales may have been prompted by a desire to purchase inputs ahead of expected price increases.
Offset by income
The effect of higher input prices have been more than offset by improvements in Irish milk, cattle and lamb prices in 2021.
While the harvest is only getting under way, higher Irish cereal prices are also looking extremely likely this year.
The dairy cow population has continued to increase in 2021 and a particularly strong increase in Irish milk production of 6% or more is likely.
Cattle prices, particularly for finished cattle, have improved in 2021.
This increase will be partially offset by lower levels of support payments in 2021, following two years in which exceptional aid was provided to the sector to deal with periods of weak market prices.
The trend of lower UK and New Zealand lamb exports to the EU, which was observed in 2020, has continued into 2021. This has created opportunities for Irish lamb exports.
As a result, Irish lamb prices, which were already at a high level, have surged further in 2021, with prices forecast to be more than 25% higher than in 2020.
While direct costs of production on Irish sheep farms will be higher in 2021 due to higher feed, fertiliser and energy prices, margins and incomes for Irish sheep farmers are forecast to grow strongly in 2021 due to the increase in lamb prices.
For Irish cereals, favourable weather conditions at sowing meant that there has been an increase in the area allocated to the typically higher-yielding winter crops for harvest in 2021.
Due to more favourable weather at the critical plant development stage, expectations are that yields for Irish cereals in 2021 will be up considerably on those achieved in 2020.
Given international supply and demand dynamics, cereal prices are expected to increase significantly at harvest 2021 for the main Irish cereal crops, compared with harvest prices paid in 2020.
Forward contract prices on offer at present, coupled with expected yield increases, will likely lead to a significant increase in cereal gross output on farms in Ireland in 2021. Straw prices also appear to be holding firm.
The addition of support from the newly introduced straw incorporation scheme will also provide a boost for tillage farms.
While there will be some pressure from higher cereal input expenditure, this will be insufficient to balance out the projected output value increase in cereals.
A large increase in cereal margins and incomes in 2021 is now expected, with the average tillage farmer expected to make an income in excess of €40,000.