We live in strange and worrying times. Two years ago we hardly knew the meaning of the word pandemic and the idea of a war in Europe would have been considered nonsensical.
Things have changed so drasticallyand farmers have found themselves on the front lines in the aftermath of these unfortunate events.
Here I analyze the likely impact of rising input costs on our three main farms — Grains, dairy and beef. Can grain, milk and beef prices absorb cost increases?
Grain
Using the Teagasc Crop Cost & Returns 2021 figures for winter wheat and spring barley as a base, I estimate the costs that will be incurred in 2022.
My numbers show that the input cost to produce one hectare of winter wheat will increase by €827/ha (€335/ac) from €1,331 in 2021 to €2,158 in 2022.
So to get a similar yield, the value of the harvested crop must be €827/ha higher.
That’s a tall order given the returns it’s generating in 2021, but current price projections suggest that 2022 returns could match or exceed last year’s returns, despite the massive cost hikes.
The input costs for the production of one hectare of spring barley are expected to increase by €629 (€255/ac) this year.
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Increase in input costs for grain
Increase in input costs for grain
So in order to get a similar return in 2022 with a similar yield as in 2021, the barley has to increase by about 100 €/t at harvest.
This looks a lot like it’s on the cards. As they say, it is a bad wind that blows no good on anyone.
dairy
I am using the ACA Farmers’ Handbook milk forecasts for a spring calving herd in 2021 as a baseline.
The 2022 figures reflect current prices for fertilizers, concentrates and heating oil, as well as expected prices for electricity and other overheads.
The table shows input and overhead costs from 28 c/L in 2021 rising to 35.9 c/L in 2022.
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Increase in input costs for dairies
Increase in input costs for dairies
With an expected average base milk price in the peak months of 42 c/l, the average dairy farmer can expect to make a lower net profit than in 2021, although the average milk price is expected to be 6 c/l higher.
The profit cut is typically around €100 per cow for the less intensive producer, but those with high stocking rates and high concentrates need an excellent growing season or their profit cut will be much worse.
beef
I’m using Farmers’ Handbook 2021 veal-to-meat data and forecasting 2022 figures based on current costs.
The table shows that input and overhead costs per livestock unit will be €387 higher in 2022 than in 2021.
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Increase in beef input costs
Increase in beef input costs
This equates to €1/kg, more than offsetting the increase in the factory price of beef over the last 12 months.
Summary
State of things, It looks like both dairy and beef will suffer from rising input costs, while grains will be fine.
All three sectors have recently benefited from price increases ex works, although further price increases are likely — otherwise the effect would be much worse.
Unfortunately, this is not the case with the hog, poultry and horticultural growers who are in the eye of the perfect storm.
These companies have never benefited from government or EU subsidies — not because they didn’t need them, but because the EU, for some weird reason, decided they weren’t entitled to them.
Well, unless these producers are supported in a meaningful way by both the government and the banks, they will be out of business very soon. As simple as that.
https://www.independent.ie/business/farming/agri-business/finance/can-your-farms-profit-margins-withstand-the-steep-rise-in-input-costs-41518206.html Can your company’s profit margins withstand the steep increase in input costs?
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