Teagasc Situation & Outlook Conference: Mixed Returns for Farmers in 2004

Dairy

Billy Fingleton of Rural Economy Research Centre said that 2004 marked a recovery in margins in dairying with the estimated outturn much better than had been expected at the beginning of the year. Milk prices had remained steady, despite the cut in intervention prices and the enlargement of the Community.

Increased international demand for dairy products coincided with constraints in milk production in Europe and Australia. Milk production costs in Ireland were stable and reduced feed use was offset by increased concentrate prices.

Mr. Fingleton suggested that prices paid for milk will fall in 2005, despite positive market developments. An overall reduction of 4% is forecast. Dairy calf prices are also likely to decline, with decoupling. Costs on dairy farms are likely to be contained, particularly due to reductions in concentrate prices and reductions in gross and net margins of 3% and 6.5% are forecast.

Cattle

Liam Dunne of Rural Economy Research Centre said that estimates for 2004 suggest that aggregate gross margins in cattle would again decline. An excellent grazing and fodder season and a substantial recovery in cattle prices were positive aspects from 2004. But the increased revenue from higher cattle prices and somewhat lower costs were not sufficient to offset a reduction in value of direct payments.

For 2005, Liam forecasts that beef and cattle prices will remain stable, despite the impact of the strong euro and the reintroduction of "over 30 month beef" on the UK market. Calf costs are likely to be somewhat lower as will concentrate feed costs. However the overall cattle enterprise margin will again decline because of the reduction in the value of direct payments.

This however is an incomplete representation of the economic outlook for cattle farmers as the Single Farm Payment (scheduled for payment in December 2005) is not included in the enterprise margin as it is regarded as a farm based payment.

Cattle farmers in 2005 will benefit from the overlap of direct payments systems. This arises from the phasing out of the animal based payments and the introduction of the Single Farm Payment. The net impact could result in a revenue injection of the order of EUR550 million in 2005.

Liam Dunne cautioned farmers regarding how they might spend this overlap payment. He suggested that they avoid inflating cattle prices in the Autumn of 2005 and imprudent capital investment, which would result in added costs, and which are unlikely to be sustained by cattle margins in the future.

Crops

Fiona Thorne of Rural Economy Research Centre said that there was a substantial increase in yields and consequent increase in financial performance of the major cereal crops compared with the previous year. For example, the average yield achieved for Spring feed barley and Winter wheat this harvest represented a 17% and 18% increase from 2003 levels. The consequent effect on gross margin was estimated to be a 7% and 8% increase over 2003 levels respectively, given a reduction in prices paid at harvest and an increase in direct costs.

The minor cereal crops did not experience such substantial increase in yields. Coupled with a decrease in average prices paid at harvest and an increase in direct costs, the gross margin for all minor cereal crops in 2004 is estimated to be slightly less than that achieved in 2003.

The gross margin for sugar beet for 2004 is estimated to be higher than in 2003, due mainly to quite substantial increases in yields. Furthermore, the margin for potatoes is estimated to be only slightly higher than 2003 levels, associated with substantial increases in yield and a consequent dramatic price decrease.

Looking forward to 2005, there is a high probability that margins for the major cereal crops will be lower than those achieved in 2004. This figure is based on the forecast that yields return to normal, the Single Farm Payment will be subject to modulation and deductions for the national reserve, input prices increase marginally and cereal prices are higher than those achieved this year.

The margin for sugar beet is forecast to be lower than 2004 levels, mainly associated with a return to average yields. The forecast for potato margins is a slight increase over 2004 levels, mainly associated with a return to average yields, maintenance of production area and a consequent increase in prices paid.

Sheep

Anne Kinsella, National Farm Survey, Athenry, said that the downward trend in sheep flock numbers was continuing but that there had been an increase in ewe numbers. In 2004 estimated margins are down again in all three enterprises - early lamb, mid-season lamb and Hill-Blackface. However sheep enterprise margins compare favourably with those in cattle and cereals.

A small increase in gross margins is forecast for 2005 (when account is taken of the subsidies). The decoupling of the subsidies is likely to have a dramatic effect on hill/blackface production, where the average "market based" gross margin in 2003 was only EUR3, implying that on many farms this enterprise was loss making, and could see a major decline in numbers post decoupling.

Pigs

Mr Michael Martin, Chief Pig Adviser, Teagasc said that pig production had been reasonably profitable in 2004. Despite high feed prices until the harvest, profitability was achieved through improved pig prices. Sow numbers are in decline in Europe, with reductions in the most recent censi of 3.5% in UK and 2.5% in Ireland.

Sow numbers are down 13% in Northern Ireland. Reduced numbers have led to a decline in pig slaughterings, which has been partly offset by a steady increase in average pig slaughter weight. Available data suggest that output per sow in 2004 is less than previously reported, which has serious implications for the competitiveness of the industry.

With good pig prices forecast and lower feed costs, Gross Margins in 2005 are expected to improve. Nevertheless sow numbers are expected to decline further because of animal welfare requirements, extra costs arising from the proposed nitrates action plan, licensing requirement and insufficient young people entering the sector.