Higher costs but dairy and beef offer relief

The relatively favourable market conditions to date this year for dairy products and beef is offering some welcome relief from the cost of the fodder crisis, according to Teagasc economists in their annual mid-year review of agricultural markets and farm incomes.

The relatively favourable market conditions to date this year for dairy products and beef is offering some welcome relief from the cost of the fodder crisis, according to Teagasc economists in their annual mid-year review of agricultural markets and farm incomes.

The fodder crisis will result in substantial increases in costs in 2013 after an already very high cost year in 2012. Following an almost 25 percent increase in feed expenditure on livestock farms last year, 2013 is likely to see further increases.

Overall farm expenditure on animal feeds, including the fodder imported to the country earlier this year, is likely to be up about 17 percent in 2013 on the very high 2012 level.

International dairy product prices increased throughout the second half of 2012 and have remained buoyant into the first half of this year. Although product prices are now beginning to fall, peak season milk production has benefitted from the higher price. Overall it is expected that the annual average milk price this year will be approximately 10 percent ahead of last year’s price.

“Increased input expenditure is likely to be offset by the higher milk price and dairy farmers are likely to see an increase in profit margins of about one cent per litre this year, or almost 13%,” said Teagasc economist Trevor Donnellan.

Finished cattle prices increased through the first half of 2013, with R3 steer prices 6% higher than in the same period in 2012. The buoyancy of finished cattle prices in 2013 has not been matched by developments in the prices of calves and weanlings. Calf prices in 2013 are down by over 30% year on year and weanling prices down by 20% for the year to date.

“On suckler farms lower calf and weanling prices and higher expenditure on feed as a result both of the fodder crisis and higher feed prices are forecast to lead to a decrease in margins earned. On cattle finishers the higher output prices received in 2013 are forecast to offset the negative impact of higher feed expenditure on margins earned in 2013 when compared with 2012,” said Teagasc economist Kevin Hanrahan.

Lamb prices have increased through the first half of 2013 compared to the end of 2012. But on average lamb prices still remain approximately 4% lower than prices during the first half of 2012. With increased feed expenditure as a result of the fodder crisis and higher feed prices, the increase in lamb output volume per hectare expected in 2013 will partially offset the negative impact of the cost price squeeze on margins earned from mid-season lowland lamb.

Cereal yields are expected to be particularly good this year, especially in comparison to the depressed yields of last year. While it is still too early to make an accurate assessment, the outlook is for a good harvest globally and as such cereal prices are expected to fall by up to 30%. Overall, profit margins for winter wheat and spring barley production are likely to be lower than in 2012, as cereal price reductions outweigh yield improvements on most farms.

Pig feed prices have increased at a faster rate than pigmeat prices over the last 12 months and this means than 2013 has become another difficult year for pig producers. While some relief is in store in the second half of the year, with an expected fall in feed prices, pig producers will need pig prices to remain firm in order to claw back accumulated losses.