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23 April 2019

2019 – An Uncertain Outlook

Posted By: AIB Business
2019-a-good-start-but-an-uncertain-outlook-245

2019 – An Uncertain Outlook writes Tadhg Buckley, AIB Head of Agriculture Sector

The exceptionally benign weather conditions that have been prevalent to date in 2019 has provided a welcome boost for Irish farmers, allowing earlier turnout of stock, and helping significantly in reducing costs particularly when compared to Spring 2018. While the weather is a welcome boost, it is needed with output prices under pressure in a number of sectors while the price of some of the main inputs have also increased. And this is before we even consider the impact Brexit could potentially have on the sector. At the time of writing there remains considerable uncertainty as to the shape and nature of Brexit but it is safe to say that, whatever the outcome (unless it remains similar to the status quo), it will have a negative impact on Irish Agriculture.

The increase in input prices over the past 12 months has been significant for Irish farming. Based on Central Statistics Office (CSO) data, agricultural input prices have increased by almost 6% over the past 12 months driven mainly by a substantial increase in fertiliser (+9.1%) and animal feed (+10.1%) prices. Coupled with this, farm output prices are on average almost 3% lower than this time last year. While this trend is of concern for overall farm incomes for the year, it is important to note that we are still in the early stages of 2019 with many twists and turns likely before year end.

Taking a closer look at the individual sectors, beef price didn’t rise through the Spring as has been the norm, and is currently c. 7% lower than 2018 levels with aggregate prices for R3 steers currently c. €3.66 excluding VAT. This, coupled with higher feed costs and delayed slaughter, has impacted margins on cattle finishing farms. The outlook for 2019 will be heavily influenced by the outcome of Brexit negotiations given how heavily exposed the sector is to the UK market. The sheep sector is also experiencing downward price pressure (7% year-on-year early April), however with both the Easter and Ramadan festivals coming end April / early May, a welcome rise in price is likely.

Turning to the dairy sector, milk price, at 30-31 cent/litre excluding VAT is currently running c. 10% lower than 2018. The milk price outlook for 2019 could best be described as neutral with increased skim milk powder prices offset by reduced butter prices. The favourable weather conditions have been of particular benefit to dairy farmers with Teagasc Pasturebase estimating that farms had, on average, 20% more grass at the end of February 2019 versus 2018. This level of grass availability gives dairy farmers the opportunity to reduce feed and fodder usage and accordingly significantly reduce production costs. Similar to the Beef sector, the outcome of Brexit could also have a negative impact on the dairy sector which is also significantly exposed to the UK market (although not as heavily as Beef).

2018 saw a welcome increase in margins for tillage farmers following a number of difficult years. Currently, cereal markets point to a green harvest price of c. €145-€150/tonne however, as 2018 proved, it is very early days and this guide price has the capacity to change significantly between now and harvest. 

To finish, looking to the pig sector, there are finally signs of improvement in prospects for Irish pig farmers following a very difficult year in 2018. While current pig price, at €1.46/kg excl. VAT early April, is similar to 2018 levels, the outlook for pig prices is positive for the remainder of the year with increased demand for pigmeat anticipated from China.

To conclude, the outlook for 2019 is heavily predicated on Brexit, the outcome of which may well present challenges to some sectors of Irish Agriculture. We understand that these challenges may mean some of our customers will experience cashflow difficulties. We are here to help farmers overcome these challenges by working together to find a solution appropriate to each farmers’ needs.

(Source: Market data is sourced from Bord Bia and the Central Statistics Office)

 

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