Farms Benefit from Falling Production Costs in 2014

IRELAND - In its mid-year assessment of likely farm profitability in 2014, Teagasc economists have highlighted falling production costs as the main driver of farm incomes in 2014.
calendar icon 28 July 2014
clock icon 3 minute read

Speaking on the release of the Teagasc Mid-year Outlook for Irish Agriculture 2014, Teagasc economist Trevor Donnellan said; ”Following two high production cost years in 2012 and 2013, Irish farmers are finally now seeing a reduction in their input spending”.

With generally good grass growing conditions to date in 2014, the main driver of the fall in production costs has been reduced expenditure on concentrate feeds, which have now reverted back to a level which would be considered normal. Compared with this time last year, feed prices are also lower, bringing additional savings to livestock farmers.

So far this year, farmers have also experienced reductions in their fertiliser and fuel bills, while inflation in other costs continues to remain low.

As a result of these falling production costs, dairy, sheep and cattle rearing farms should see an increase in their gross margins in 2014.

However, Dr Kevin Hanrahan, Teagasc economist said; “It is not all good news, with the fall in the costs of production being insufficient to offset the fall in the price of cattle received by beef finishers, whose margins are now forecast to decline in 2014”.

With a large global crop harvest now forecast for 2014, it would appear that cereal prices this year will be lower than those of the 2013 harvest. Nevertheless cereal producers will also benefit from a reduction in their costs, although not to the same extent as grassland farmers.

Dr Fiona Thorne, Teagasc economist said; ”Even if yields in 2014 are to exceed average trend yields as indicated by crop growth and early harvest indications, it is unlikely that this would be sufficient to overcome the impact of lower cereal prices and therefore cereal margins in 2014 are forecast to be lower than in 2013”.

Irish Cattle and Sheep Association President Patrick Kent said that final figures from the Teagasc National Farm Survey 2013 highlight yet again the serious difficulties facing suckler farmers and beef finishers.

"The Teagasc figures confirm that, on average, net losses on suckling enterprises were 167% higher in 2013 than in 2012," said Mr. Kent. "Suckler farmers lost an average of €123 per hectare, which is more than twice the level of the average negative net margin in 2012. In terms of loss per cow, the figure was €171, more than twice the 2012 figure and clearly representing an unsustainable level of losses."

"Cattle finishers also fared badly, generating on average a net loss of €133 per hectare in 2013. This loss per hectare is 166 per cent higher than that incurred in 2012. Of even greater concern is the fact that there doesn't seem to be any end to this crisis in sight, with the Teagasc Mid-Year Outlook predicting a further decline in margins for cattle finishers this year despite lower costs of production."

"While the sheep figures do at least show a profit, the drop of 75 per cent in net margin per hectare, from €165 in 2012 to €41 last year is cause for concern," continued Mr. Kent, noting that this decline in profitability was driven by large increases in direct and overhead costs.

"All the above figures compare very unfavourably with the dairy sector, where net margin per hectare was up from €783 to €1,290, an increase of 64 per cent. Unless action is taken to restore profitability to the drystock sector, what is the future for these farm systems?"

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