Challenges and opportunities for the year ahead
2017 was both an interesting and challenging year in equal measure. On the one hand, inclement weather along the western seaboard led to many having to house cattle early, with consequential fodder shortages now. On the other hand, 2017 was a relatively positive year overall with increased output prices combining with stable input prices to deliver improved returns across many sectors.
The relative uplift however is very much dependent on the farm sector engaged and indeed the level of on-farm efficiency.
Before looking at the performance and outlook for the individual sectors, let me take this opportunity to encourage any of you experiencing fodder or cashflow difficulties as a result of the recent weather difficulties to make early contact with your bank. No one solution will suit all farms, but the bank will work with you on a case by case basis to find an appropriate solution to suit your situation.
Looking firstly at the beef sector, aggregate beef prices to early December were marginally above 2016 levels (+1.1% at €3.98/kg) driven in the main by strong factory demand (national kill is at 10 year high’s) and improved live export trade (+44,000 head, with notable increases to Belgium, Holland, Spain and Turkey in particular). Given stable input costs and expenditure, incomes on beef farms should be marginally above 2016 levels, albeit with regional variation. Looking ahead, given reduced EU supplies; the increasing demand and beef consumption patterns, both here and on international markets, the short-term outlook for beef price looks positive.
Continuing their upward trend from Q4 2016, milk price and supplies increased through 2017 [prices up c. 33% to c.3637c/litre (incl VAT) and supplies up c.8% nationally respectively], helping deliver strong returns on many dairy farms. Teagasc estimate record average dairy farm incomes of €90,000 - or an average net margin of c. €1,800/ha. Although import demand is expected to remain solid, a recovery in milk supplies across some of the main exporting markets combined with the deflated butter market will lead to a lower farm-gate milk price in 2018, however average dairy returns are expected to remain relatively good.
Sheep Welfare Scheme receipts combined with similar sheep prices helped support incomes on sheep farms in 2017, with average margins of €280/ ha reported. Increased EU sheep production and imports will likely put downward pressure on sheep prices through 2018, which, when combined with modest increases in input prices, will unfortunately likely result in marginally lower returns in 2018, unless increased output or improved efficiencies are realised.
Winter Cereals got off to a slow start with disappointing yields for many specialist growers. Fortunately, Cereal yields recovered as the year progressed, which, when combined with modest price increases, higher straw prices and reduced costs, brought modest increases in market incomes in 2017 – albeit remaining at continued low levels. Looking ahead, there appears little signs of considerable change in 2018 either unfortunately, where a recovery in stocks and modest input price increases will erode the potential benefits arising from increased global consumption demand and reduced plantings.
Finally, 2017 seen significant recovery and a return to profitability for the pig sector due to improved pig prices (up 9.4% year-on-year) and steady feed prices. Teagasc estimate an average annual margin-over-feed of 58c/kg for 2017, some 26% above the 5-year average. The outlook for 2018 is for continued profitability but at a lower level than in 2017 due to some weakening in pig price given increased EU pigmeat supplies and greater competition for the Chinese market.
As we look ahead to 2018, projecting forward is by no means an exact science. Overall, 2018 looks set to be a mixed year for the sector. Aggregate incomes are forecast to fall below 2017 levels, mainly as a consequence of downward price pressure in the dairy, pigs and sheep markets. Some of these losses should be compensated somewhat by increased volumes produced.
Naturally, much will depend on prevailing weather conditions, which have been particularly difficult of late, in addition to geopolitical influence, although the early indications of a softer Brexit are certainly welcome, helping at least improve market sentiment in the short-term.