Dairy farmers are better positioned

December 18th, 2015 10:10 PM

By Southern Star Team

Donal Whelton, Agri Advisor, AIB

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2015 has been another mixed year for the farming sector.

2015 has been another mixed year for the farming sector. On the one hand, favourable weather conditions in many parts of the country contributed to positive livestock thrive, extended grazing, and adequate fodder supplies, however on the other hand, price volatility has been very much to the fore, and will certainly depress incomes in some sectors this year, despite relatively stable input prices to date.

Looking at the individual farm sectors, it is likely that the average milk price for the year will be approximately 29c/litre, some 10c/litre below 2014 levels, with any meaningful uplift unlikely before quarter two of 2016. Milk constituents are running ahead of 2014 and in the absence of quota, volumes are up which is adding to monthly milk revenue. Costs have remained moderate through 2015 and the option to phase superlevy bills over three years has provided relief to many.

While it is envisaged that some dairy farmers will experience cash flow pressure this year and into 2016, on balance, dairy farmers are better positioned than in either 2009 or 2012. The very strong milk price of the last two years has buoyed credit balances, co-op merchant credit is at relatively low levels, and surplus or beef stock sales are benefiting from strong market prices.

Looking to the beef and sheep sectors, the combination of strong grazing conditions and moderate feed prices should combine with higher output prices to increase incomes on sheep, suckling and finishing farms in 2015. On average, calf and weanling prices are trading substantially ahead of last year conferring a margin benefit to suckler farmers. However, it remains to be seen what margin can be achieved on this stock as they are finished.

The grain sector has witnessed increased volatility in recent years, with current green prices averaging between €130 and €140/tonne (ex VAT). Harvest yields have been positive, and with aggregate costs largely unchanged year on year, overall margins are likely to remain similar to 2014 at low levels.

The pig sector has endured another year of low margins in 2015, mainly due to lower pig prices as a result of Russia banning EU imports, and higher EU and US supply. Reduced supply and higher demand, particularly from China, is expected to return more favourable returns in 2016.

Overall, industry estimates suggest that the national farm income will fall to approximately €24,000, the lowest level since 2010, albeit with significant variation within and across sectors. The 70% advancement of the Basic Payment received by many in recent weeks should help to ease potential cash flow difficulties, at least in the short term. It is however likely that the main impact of reduced output prices will be felt in the first half of 2016.

I would encourage all farmers to examine their cash flow requirements to ensure they have sufficient working capital in place for the months ahead. Solutions are best tailored at an early stage and early contact with your bank is key. 

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