Teagasc has been forced to revise its farm income outlook as high costs, largely but not exclusively related to Russia’s illegal invasion of Ukraine, put pressure on farm profitability.
A new report, released just months after its previous outlook by economists at Teagasc, says median family farm income (FFI) income in Ireland is estimated to have risen by 20 per cent in 2021, a fall in median income for the year However, 2022 is now very likely as increases in producer prices will not be able to offset the increase in production costs.
Teagasc said that even before Russia’s illegal invasion of Ukraine, the agricultural outlook for 2022 was dominated by concerns about cost pressures, which began to build in the second half of 2021. However, the war in Ukraine has led to a stronger and more widespread increase in agricultural input prices in 2022, higher than expected at the end of 2021.
Rising grain and oilseed prices were expected for 2022, but due to the crisis, price increases are now expected to be significantly higher than originally forecast.
While this will benefit grain farmers, Teagsac said it will have significant adverse consequences for farmers who buy animal feed made from grains and oilseeds.
The rise in crude oil prices in 2022 was dramatic and this too is at least partly a consequence of the crisis. This means that, on average, fuel prices in 2022 will be significantly higher than in 2021, perhaps by as much as 60 percent in the case of green diesel. A sharp increase was also observed in electricity prices. Rising energy prices have led to higher inflation for a variety of commodities. Higher fuel prices and inflation of other costs will mean that contracting costs will also increase significantly in 2022.
However, the biggest concern on the cost side for 2022 is the price of fertilizer, Teagasc said. Due to the rising European gas prices, extremely high prices were expected for 2022. The war in Ukraine has led to a further acceleration in price increases, with fertilizer prices increasing by more than 200-250 percent in 2022 compared to 2021 levels.
Fertilizer prices and fertilizer availability remain the top two concerns for farmers this year. Due to the very high price level for fertilizers, a certain reduction in the use of fertilizers is expected.
Overall, significantly higher production costs are forecast across all sectors in 2022.
On the other hand, Irish agricultural producer prices are also increasing. However, these increases in producer prices have lagged behind the increase in production costs that has already taken place.
Dairy farmers appear to be the least affected given the extremely bright prospects for the milk market in the coming months. Despite the increase in production costs, milk prices are at unprecedented levels and it is conceivable that Irish dairy farm incomes in 2022 could be at 2021 levels.
While prices for finished cattle have increased significantly year-on-year, that increase is unlikely to be enough to prevent an income decline for most cattle farms in 2022. Beef production is projected to be higher in 2022 compared to 2021, contributing to increasing value on beef farms. Young beef cattle prices are expected to increase to a lesser extent compared to finished beef or older cattle prices in markets. As a result of rising input costs, a significant drop in farm income is predicted for the average cattle farm.
A minority of beef cattle farms may be able to maintain their margins and income at 2021 levels because the input to output ratio on these farms is lower compared to most cattle farms.
This assumes, however, that beef prices remain at current levels or increase for the remainder of the year. Other cattle ranches are forecast to experience declines in farm income. For the individual farm, the timing of cattle marketing in 2022 will be particularly important.
Similarly, despite higher than expected lamb prices that will result in higher production value, sheep farms face a drop in income in 2022 due to increased production costs. Tight global sheepmeat markets and export demand for Irish sheep are forecast to keep Irish lamb close to current price levels for the remainder of the year. Payment of the Sheep Welfare Scheme in 2022 will continue to support margins on sheep farms.
The outlook for input spending in 2022 is less positive than in 2021 from the perspective of Irish sheep farmers, as the prices of the main inputs to sheep production are expected to increase significantly. Consumption rates for most sheep farm inputs are forecast to remain relatively flat (per hectare) in 2022, but due to the projected sharp increase in fertilizer prices, fertilizer consumption will decrease. Overall, grazing and feed costs on farms with lambing operations are expected to increase significantly in 2022.
Earnings for arable farms in 2022 will likely lead to a drop in revenue, but as always, weather conditions and their impact on yields will have a strong impact on the bottom line. Assuming average yields are achieved for the 2022 harvest, farm-level cost pressures will more than offset an increase in grain prices at harvest. At this stage of the production year, it looks like income levels on specialist arable farms will drop about 25 percent compared to 2021. While the Tillage Incentive Scheme (TIS) is likely to increase production value in certain circumstances, the impact on income levels on specialist arable farms is uncertain at this point in the production year.
Ireland’s pig farmers are undoubtedly facing the biggest challenges right now, with the average pig farm estimated to have lost €166,000 year-to-date. There have been some hog price increases in the last few weeks. To date, however, Irish pig prices have not increased to offset the significant increase in pig production costs, mainly due to high feed and energy prices. While hog prices are expected to increase in the coming months, pig farmers will continue to lose money in the meantime. The Irish sow herd has already started culling 10,000 sows with a further 12,000 sows at high risk of destocking in the coming weeks.
https://www.independent.ie/business/farming/news/farming-news/teagasc-forced-to-revise-farm-income-outlook-as-input-costs-soar-41549874.html Teagasc forced to revise farm income prospects as input costs soar