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Agricultural Economics and Farm Surveys DepartmentTeagasc
Ag Econ and Farm Surveys Dept.Trevor Donnellan
Macroeconomic Outlook
Economic & PoliticalDevelopments in 2016
• Take your pick– Brexit and US Elections outcome
– Rise of nationalism/protectionism in Europe and elsewhere
– Crisis in Middle East (deteriorating US/Russia relations)
• Immediate concerns– Collapse of sterling in aftermath of Brexit vote
– Immediate competitiveness issue for Irish agri-food exports
– I cent rise in euro v sterling = €45m fall in agri-food export value
• Longer term concerns– Uncertainty with regard to Brexit
– What happen next in Europe and elsewhere
Monthly Euro Sterling exchangerate 2006 to 2016
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16
ster
ling
per
euro
Source: ECB
Monthly Euro US dollar exchangerate 2006 and 2016
1.00
1.10
1.20
1.30
1.40
1.50
1.60
Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16
dolla
rsper
euro
Source: ECB
Brent Crude price 2007 to 2016
0
20
40
60
80
100
120
140
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
curr
ency
per
bar
rel
US Dollar Euro
Source: St Louis Fed
World economy 2016
• A few surprises !
• Despite Brexit vote, EU set to outperform US in 2016
– EU GDP growth likely to be stronger than US
• ECB monetary policy measures
– Eurozone remains a low inflation environment
• Lot of concern about China
– Economic growth continues to slow
– Some questioning veracity of GDP figures
• Russian Embargo
– Has continued
Irish Economy 2016
• Continued recovery
– Real GDP growth of 5.5% in 2015
– Real GDP growth of 4.3% in 2016 (ESRI)
• Falling unemployment rate
– now < 8% (Employment now >2 million)
– Down from a peak of 15.1% in 2012
• Increase in economic activity
– Personal consumption up
– Property market and building activity continue to increase
• Exports up > 5%
Irish Labour Market
0
2
4
6
8
10
12
14
16
1700
1750
1800
1850
1900
1950
2000
2050
2100
2009 2010 2011 2012 2013 2014 2015 2016 2017
%
Th
ou
san
ds
Employment (levels) Unemployment Rate
Source: ERSI 2016
International Outlook 2017
- US & Eurozone Economy
- UK economy
- Brexit uncertainty signals low growth
- Commodity Prices
- No strong price drivers
- Uncertainty Abounds
Irish Economy 2017
• Falling unemployment rate
– Down to 6.5% by end of 2017
• Increase in employment
– To reach 2.05 million by end of 2017
• GDP growth to remain strong
– 3.8%
– But downside risks
• Irish growth prospects tied to Brexit developments
– And global events elsewhere
Ag Econ and Farm Surveys Dept.Fiona Thorne
Outlook for Inputs
Low Prices forcommodities in 2016
• Initially oil fell further
– Reaching a low of US$ 30 per barrel in Jan 2016
– Weak recovery toward US$ 50 mark later in year
• Low commodity prices across the board at present
– Energy, metals and ag commodities
• Agriculture benefitting on cost side
– Lower petrol and farm diesel prices
– Lower fertiliser prices (as the year progressed)
– Magnitude of benefit very sector specific
Feed in 2017
• Cereal prices
– Futures harvest prices for 2017 up 8% on 2016 level
• Feed Prices
– Relatively unchanged in 2017 v 2016 level
– A year of two halves, slight decrease H1 & slight increase H2
• Feed usage
– Likely to increase in dairy on aggregate and per head basis
– (Low milk prices impacted on feed use per head in 2016)
– Slight aggregate increase in beef due to higher stock numbers
Feed Prices Index 2017(Cattle Compound Feed )
50
75
100
125
150
2005 2007 2009 2011 2013 2015 2017f
Index
2010
=100
Feed prices stable in 2017
Source: CSO with Authors’ Estimate 2016 and Forecast for 2017
Fertiliser in 2017
• Offsetting effect on fertiliser prices in 2017
– Spot prices may show some upward movements
– But coming from a lower level than 12 months ago
• Fertiliser price
– H1 2017 prices will generally be below level of H1 2016
– 5 percent decrease in 2017 for grassland on an annual basis
Divergent story for crops, 15 percent reduction on an annual basis
• Remember seasonality of purchases
• Fertiliser application
– Expect no change in fertiliser use in 2017
Fertiliser Price Index 2017
50
75
100
125
150
2005 2007 2009 2011 2013 2015 2017f
Ind
ex
2010
=100
CSO Index of all fertilisers
Cereals fert. index
Source: CSO with Authors’ Estimate 2016 and Forecast for 2017
Prices to increase slightly offSeptember 2016 prices
Fuel, Electricity & other prices in 2017
• Oil prices should move upwards in 2017
– 2017 prices will average higher even if no increase in spot price
– Suggests a rise in fuel price of about 10 % in 2017
• Electricity Prices
– Forecast no change in price in 2017
• Labour Costs
– To rise by 2% in 2017
• Other costs• To rise by 3 to 4% in 2017
• Recent inflation has been surprisingly strong in this sector
Price per hectare ‘16 & ‘17• Price change relative to previous year
2016 2017
– Feed no change up 2%
– Fertiliser sector dependent sector dependent ???
– Seed no change down 5 %
– Crop Protection up 3% up 3%
– Other Direct Costs up 4% up 4%
– Fuel down 12% up 10%
– Rent up 5% up 5% ???
– Other Overhead Costs up 4% up 4%
From Inputs to….Crops
• Mixed story for inputs for 2017
• Different implications for individual commodities
• To begin with - look at Crops
Ag Econ and Farm Surveys Dept.Fiona Thorne
Outlook for Cereals
Summary of Cereal Situation in 2016
• Mixed story for inputs for 2016, with not much change overall
• Yields and prices generally lower
• Resulting in lower gross and net margins in 2016 relative to 2015
• Cereal enterprise net margin negative on average
Gross Margin - major cereals
Source: Teagasc, National Farm Survey & Author’s estimates
Gross margins down by €100 to €250 per hectare
0
200
400
600
800
1000
1200
S barley W wheat W barley
€p
er
hecta
re2015 2016
Cereal Enterprise Net Margin (‘15 – ’16)
Source: NFS and Authors own estimates
The average cereal farmer will make a negative marketbased net margin in 2016 of approx. €100 per hectare
-600
-400
-200
0
200
400
600
Low margin Moderatemargin
Highmargin
Average
€p
er
he
ctar
e
2015 2016
Global Cereal Markets in ‘16/’17• Global market very comfortable stock to use ratio at end of 2016
– Nothing in supply and demand to lift in prices until harvest 2017
• But will 2016 global ‘record harvest’ be replicated in 2017?
– March 2017 before forecasts are anyway reliable
– Planting decisions based on 2016 gross margins
• Static crops area in the EU
– Record world harvest in 2016 v’s return to trend yield in 2017?
– Consumption levels likely to be high based on 2016 price levels
• Cereal prices likely to be higher at harvest 2017 ~ + 8%
– Current futures prices for November 2017 (relative to harvest 2016)
– Euro versus $ and £ exchange rates
EU & World Cereals Balance SheetMarketing Year
Source: Strategie Grains
Production (& ending stocks) increased for most cereals ‘16/’17
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
Wheat Barley Maize
Sto
cks
toU
seR
ati
o
2015/16
2016/17
Wheat Harvest Price: Historic & Forecast
Source: Authors own estimates & forecast
Highest probability that price in 2017 will be higher than 2016
But still a range of estimates [ €110 to €230]
50
100
150
200
250
300
2002 2004 2006 2008 2010 2012 2014 2016
€p
er
ton
ne
(20
%m
ois
ture
)Historic Values
Predicted 2017 price
Yields in 2017
• Assume trend yields for 2017
– Know that this is a large unknown at this stage
– March of the harvest year before production estimates are‘informed’
• Record yields for two of the past three harvests in Ireland
– Assume 5 year average for 2017
• Translates into a mixed story for 2017 yields
– Winter wheat – 2%
– Spring barley + 1%
– Winter barley +6%
Cereal Costs per hectare 2017• Expenditure change relative to previous year
2016 2017
– Fertiliser down 5 % down 15 % ??
– Seed no change down 5%
– Crop Protection up 3% up 3%
– Other Direct Costs up 4% up 4%
– Fuel down 12% up 10%
– Land rent up 5% up 5% ??
– Other Overhead Costs up 4% up 4%
• Whilst direct costs are forecast down, total costs little changed in ‘17
Implications for 2017 margins
Gross Margin - major cereals
Source: Teagasc, National Farm Survey & Author’s estimates
Increase in gross margins over 2016, but gross marginsstill less than or on a par with 2015 margins
0
200
400
600
800
1000
1200
S barley W wheat W barley
€p
er
he
ctar
e
2015 2016 2017
Cereal Enterprise Net Margin (‘15 – ’17)
Source: NFS and Authors own estimates
The average cereal farmer will continue to struggle tomake a positive net margin in 2017
-500
-400
-300
-200
-100
0
100
200
300
400
500
Low margin Moderatemargin
High margin Average
€p
er
he
ctar
e
2015 2016 2017
Summary of 2017Gross & Net Margins for Crops
• Remember back output value story
• Yield & price translates to a slight upward movement in 2017
• We saw that costs do not change that much in 2017
• Slightly positive story for gross and net margins in 2017
• The average cereal farmer continues to make a negativemarket based net margin
• Top one third of farmers to have a market based net margin ofapprox. €270 per hectare
Summary of Crops Forecast
• Forecast 2017
Prices
Probability that price will increase in 2015 by about 8%
Reversion to trend yields – mixed across crops
Direct costs decrease but increase on fixed costs
Overall increase in gross margins from 2016
But still in negative market based net margin territory
Michael McKeon Teagasc Pig Development Dept.
Outlook for Pigs
Irish Pig Industry Stats
• 146,000 sows in ROI
• 8,000 employed either directly & indirectly
• Largest average pig unit size in Europe (600 sows)
• Export value per sow unit €2.1m
Pig Feed Market2016
Wheat & Maize Production - MILLION TONNES
Global Wheat
USDA 2015
715 725736 745
194 212241 249
100
200
300
400
500
600
700
800
900
2013-14 2014-15 2015-16 2016-17
Production C Stock
991 1009960
1031
175 208 209 218
0
200
400
600
800
1000
1200
2013-14 2014-15 2015-16 2016-17
Production C. Stock
Wheat & Maize Production - MILLION TONNES
Global Wheat
USDA 2015
715 725736 745
194 212241 249
100
200
300
400
500
600
700
800
900
2013-14 2014-15 2015-16 2016-17
Production C Stock
Global Maize
Soyabean Production - MILLION TONNES
USDA 2015
283
317 313336
6376 78 82
0
50
100
150
200
250
300
350
400
2013-14 2014-15 2015-16 2016-17
Production C.Stock
Irish Feed Cost (Cent / Kg Dwt)
2016 Feed Price
* Nov-Dec Est.
106
100
102
104
106
108
110
Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov
Dec
Ave
Irish Feed Cost (Cent / Kg Dwt)
2016 Feed Price 2006 – 2016 Feed Price
* Nov-Dec Est.
106
100
102
104
106
108
110
Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov
Dec
Ave
84
132
75
80
85
90
95
100
105
110
115
120
125
130
135
2006 2008 2010 2012 2014 2016
* 2016 Est.
Pigmeat 2016
149
120
130
140
150
160
170
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave
2016 Pig Price (c/kg dwt)
134
163
149
120
130
140
150
160
170
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave
2016 Pig Price (c/kg dwt)
Irish Pig Slaughterings (million head)
Teagasc Pig Dept.
3.4
3.5
3.65 3.63
2.9
3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
2013 2014 2015 2016*
* 2016 Est.
2015* 2016* % Change
Netherlands 12.3 12.1 -1.1
Spain 30.1 31.7 5.5
UK 7.8 8.1 3.2
Germany 41.6 41.1 -1.3
France 15.5 15.7 1.0
Denmark 14.8 14.3 -3.5
Total 122.1 123.0 0.8
* Jan-Oct
EU Pig Slaughterings (million head)
MPB 2016
Country 2015 2016* Change%
IRELAND (TMT) 230 257 12
EU (MMT) 2.07 2.75 33
USA (MMT) 1.41 1.48 5
Canada (MMT) 0.751 0.810 8
Brazil (MMT) 0.33 0.47 42
Global Pigmeat Exports
MPB 2016
Margin 2016
Production Cost* & Pig Price(cent / Kg Dwt)
* Total Cost = Feed cost + 50 cent Teagasc Pig Dept.
156
95
105
115
125
135
145
155
165
175
185
195
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Production Cost* & Pig Price(cent / Kg Dwt)
* Total Cost = Feed cost + 50 cent Teagasc Pig Dept.
156
149
95
105
115
125
135
145
155
165
175
185
195
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Cen
tper
kgdea
dw
t.
Total Cost Pig Price
Margin Over Feed (c/kg dwt.)
Margin OverFeed
% Diff.
2016* 43 -
5Yr (2012-16) 43.2 -
10Yr (2007-16) 43.4 -
15Yr (2002-16) 46.3 +8
20Yr (1997-2016) 46.1 +7
Teagasc Pig Development Department *estimated
Pig Outlook 2017
Wheat Corn Soya
Dec '16 391 Dec '16 347 Jan '17 1055
Mar '17 415 Mar '17 356 Mar '17 1064
May '17 430 May '17 363 May '17 1074
Jul '17 446 Jul '17 371 Jul '17 1070
Sep '17 461 Sep '17 378 Sep '17 1052
Dec '17 479 Dec '17 386 Nov '17 1035
Feed Ingredient OutlookCBOT Ingredient Outlook
+ 23 % + 11 % -2 %
Feed Ingredient Outlook
• Global supplies will ensure relativelystable (low) ingredient prices untilAutumn 2017– With the possible of soyabeans
• Soyabeans open to significant hedge fundspeculation if crop forecasts becomemildly negative
Pigmeat Price - The Chinese Effect
MPB 2014
Pigmeat Price - The Chinese Effect
• Contraction in China
• Since 2013 it has slaughtered 12.4 million sows
– Equivalent in size of total EU sow herd
• Scarcity of pigmeat has led to significant increase inChinese domestic pork price & EU exports/prices
• Recovery slower than expected in China
• May be cooling of EU exports in 2nd half of year
– due to US & Canadian competition – ‘Paylean free’
Price Forecasts
Irish Pig Price 2017
• On the expectation of export volumes to Chinacooling in 2nd half of 2017
• No A.S.F. outbreak in Germany or Denmark.
Year 2012 2013 2014 2015 2016 2017
Cent / kgdwt 166 176 167 148 149 146
Teagasc Pig Dept.
• Compound Feed:
– High global stocks
– Result in prices unchanged
– provided S.A. soyabean harvest meets expectations
• Margin Over Feed :
– To continue at 43c/kg
– which is below the required 50c/kg.
Price Forecasts
Thank you for your attention
Forestry Development Unit, Teagasc.John Casey
Outlook for Forestry
Forestry Sector 2016Total value to the Irish economy€2.2 billion
Aggregate employment figure 12,000
Total forest area in Republic ofIreland 750,000 ha (11% of totalland area)
47% of forests are privately owned
85% of private forest owners areclassified as farmers
Govt. forestry programme funding in2016 €113.8 million
Sources: Forest Service, 2015;Phillips et al., 2016
Annual planting from 2011, with 2016forecast (f) & 2017 target (t)
5500
5700
5900
6100
6300
6500
6700
6900
2011 3013 2013 2014 2015 2016 (f) 2017 (t)
he
ctar
es
Source: Forest Service (Various years)
Timber assortments
Timber prices (€/m3)• General reduction in log prices post
Storm Darwin in February 2014.
• Both Coillte & private timber prices(€/m3) fell throughout 2015.
• Recovered by 10% & 2 % respectively,until the 2nd quarter of 2016.
• Wide variation in timber pricesaccording to geographical and sitefactors .
• Currency fluctuations negativelyaffecting the price per m3 offered inthe 2nd half of 2016.
• This situation is likely to continue into2017.
0
10
20
30
40
50
60
70
80
€/m
3
Pulpwood Palletwood Sawlog
Private quarterly roundwood prices (€/m3),June 2013 to June 2016
Source: www.itga.ie
Wood product markets- Domestic & Export
Sawn timber production (000 m3)
Construction- Domestic 21% 100
Export 79% 376
Pallet Domestic 24% 50
Export 76% 159
SE Fencing Domestic 18% 37
Export 82% 166
Other markets Domestic 100% 16
Export 0% -
Panelboard production
Domestic 21% 159
Export 79% 610
Source: COFORD, 2016
UK58%
Netherlands10%
NorthernIreland
7%
Belgium5%
Germany4%
Norway3%
Others13%
Key export markets (%) for panel productsmanufactured in the Republic of Ireland (2011-2015)
Source: EUROSTAT 2016 &. Drima Market Research
Timber supply & demand in Ireland
• The net demand to increase by6% to 5.48 million m3 by 2017.
• The total net realisable volume(NRV) production in 2017 isforecasted to be 3.96 million m3.
• Forecasts indicate that theprivate sector NRV will fallslightly (-6%) to 914,000 m3 in2017.
• By 2025, 48% of the forecasted6million m3 NRV productionwill be from private forests.
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Vo
lum
e(0
00
m3
ove
rbar
k)
Private Sector ROI
Private Sector NI
Coillte
DARD FS
Total Volume
Source: All-Ireland Roundwood Production Forecast 2016-2035 (COFORD, 2016)
Forecast of Total Net Realisable VolumeProduction to 2035 (000m3)
Mobilising the private timber resource
• The number of GFLs issuedto Sept. 2016 is 42% higherthan the correspondingperiod in 2015.
• The area (ha) licensed forthinning and clearfell by Sept.2016 is already 11% higherthan the 2015 total.
• Higher proportion ofthinning licences issued.
• Certification will become anissue for private forestowners and for mills.
0
5000
10000
15000
20000
25000
2010 2011 2012 2013 2014 2015 2016(Sept.)
Thin Clearfell Total
he
ctar
es
Area (ha) of felling licences issued for privateforests, 2010-2016
Source: Forest Service (Various years)
Conclusions• It is critical that that 6,640 ha afforestation target is achieved/
exceeded in 2017 to meet both medium & long term nationalstrategic goals.
• The mobilisation of the private timber resource is crucial tomeeting the forecasted 3.5% increase in domestic sawmillingdemand, and the overall 6% net demand increase, in 2017.
• The on-going development of forest owner groups/ clusters willcontinue to facilitate thinning, increase harvesting capacity &promote certification.
• Investment in semi-mature, productive forests likely to increase.
• Irish wood products markets will remain export- orientated,vulnerable to adverse currency fluctuations. These will haveimmediate consequences for timber prices at the mill gate.
Ag Econ and Farm Surveys Dept.Kevin Hanrahan
Outlook for Beef
Summary of 2016
• Lower direct and largely stable overhead costs
• Beef output value down due to lower cattleprices
– Extra EU beef supply and weak demand growth
– BDGP on single suckling farms an upside
• Declining margins for Cattle Finishers
– Stable margin for Single Suckling
– Increased negative net margin for Cattle Finishing
On-going Stability in Costs ofProduction 2016 & 2017
0
200
400
600
800
1000
1200
Single Suckling 2015 Single Suckling 2016 Single Suckling 2017
eu
rop
er
ha
Concentrate Feeds Pasture and Forage Other Direct Costs
Energy and Fuel Other Fixed Costs
Source: 2015 Teagasc NFS, 2016 Estimate, 2017 Forecast
On-going Stability in Costs ofProduction 2016 & 2017
0
200
400
600
800
1000
1200
Cattle Finishers 2014 Cattle Finishers 2015 Cattle Finishers 2016
eu
rop
er
ha
Concentrate Feeds Pasture and Forage Other Direct Costs
Energy and Fuel Other Fixed Costs
Source: 2015 Teagasc NFS, 2016 Estimate, 2017 Forecast
Cattle Enterprise Gross andNet Margins
-100
0
100
200
300
400
500
Single Suckling
2015
Single Suckling
2016
Cattle Finishers
2015
Cattle Finishers
2016
eu
rop
er
ha
Source: 2015 Teagasc NFS, 2016 Estimate, 2017 Forecast
Margins slightly lower in 20162015
2016
2017 Forecast
• Impact of weakened sterling on Irish prices
• Weak growth in EU demand for beef
• 3 year expansion in EU dairy herd has ended
• But continued growth in EU beef production– Higher cow slaughter in 2016 will be followed by higher
prime cattle slaughter in 2017
• Increased cow numbers in Ireland– Will be reflected in increased availability of cattle for
slaughter in 2017
25 years of UK and Irish R3 Steer Prices
100
150
200
250
300
350
400
450
500
550
1991
/01
1992
/02
1993
/03
1994
/04
1995
/05
1996
/06
1997
/07
1998
/08
1999
/09
2000
/10
2001
/11
2002
/12
2004
/01
2005
/02
2006
/03
2007
/04
2008
/05
2009
/06
2010
/07
2011
/08
2012
/09
2013
/10
2014
/11
2015
/12
eu
ro/1
00kg
cw
e
UK
Ireland
Strong negative correctionin UK prices (in euro)
EU28 Dairy Cows
20.5
21
21.5
22
22.5
23
23.5
24
24.5
25
25.5
26
2002 2004 2006 2008 2010 2012 2014 2016
millio
nd
air
yco
ws
Trend break in dairy cow numbers– circa 2 + million dairy additional cows
EU28 Suckler Cows
8.0
9.0
10.0
11.0
12.0
13.0
14.0
2002 2004 2006 2008 2010 2012 2014 2016
millio
nsu
ckle
rco
ws
Recent contraction in EU suckler cows reversed with growth in ES & FRAggregate cow inventories higher => higher beef supply
Irish Cow Inventories Monthly
1.900
2.000
2.100
2.200
2.300
2.400
2.500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Millio
nh
ead
2014
2015
2016
Total cows 3.6% higher in September 2016Dairy +6% and Suckler +0.2%
Source: DAFM AIMS data
2017 Forecast
• EU demand for beef growing
– supply growth forecast to be ahead of demand
• UK market to remain important to Ireland
– But weaker pound reflected in lower € price
• Weaker world beef market in 2017
• 3 years of expansion in EU dairy herd ended in 2016
– Extra prime cattle now coming on-stream
– Reflected in growing EU beef supply
• Irish cattle prices forecast to decline strongly in 2017
Cattle Prices 2017 Forecast
Source: DG Agri, CSO and Author’s estimate and forecast
0
50
100
150
200
250
300
0
50
100
150
200
250
300
350
400
450
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
e
2017
f
eu
rop
er
100kg
lw
eu
ro/1
00
kg
cw
R3 Steer Weanling
Cattle Enterprise Net & Gross Margins
-200
-100
0
100
200
300
400
500
Single
Suckling
2015
Single
Suckling
2016
Single
Suckling
2017
Cattle
Finishers
2015
Cattle
Finishers
2016
Cattle
Finishers
2017
eu
rop
er
ha
Source: 2015 Teagasc NFS, 2016 Estimate, 2017 Forecast
Margin improvements in 2015 erased by 2017 2015
2016
2017
Cattle Conclusions• Dairy based beef supply growth in EU & Ireland
– Stabilisation in EU & Irish suckler numbers?
• Demand growth in EU weak & not sufficient toabsorb extra supply without price decline
• World markets also set to weaken in 2017
• Negative outlook on cattle prices and margins– 2017 Cattle Finishing gross margin 10% lower than 2011-2015
– 2017 Single Suckling margin supported by BDGP down 2%
• Irish prices also down due to weaker sterling
Ag Econ and Farm Surveys Dept.Kevin Hanrahan
Outlook for Sheep
Ag Econ and Farm Surveys Dept.Kevin Hanrahan
Outlook for Sheep
Summary of Sheep Situation2016
• Declining direct costs offset by higher overhead costs
• EU demand and supply largely in balance
• Stable EU prices and Irish prices
• Exchange rate movements disadvantaged Irish sheepfarmers in 2016
– Increased competitiveness of UK exports in France
• Gross and net margins per hectare both higher in 2016
– Higher carcass weights and lower costs
Lowland Lamb EnterpriseCosts of Production
0
200
400
600
800
1000
Lowland Lamb 2015 Lowland Lamb 2016 Lowland Lamb 2017
eu
rop
er
ha
Concentrate Feeds Pasture and Forage Other Direct Costs
Energy and Fuel Other Fixed Costs
Source: 2015 Teagasc NFS, 2016 Estimate, 2017 Forecast
Sheep Forecast 2017
• Stable costs of production forecast
• EU sheep meat supply & demand forecast to be stable
– AUS & NZ exports to decline in 2017
– World prices for lamb to increase
• Decline in EU and Irish lamb prices
– Due to lower prices for other meats (in particular beef)
– Impact of weaker GBP
• Contraction in Irish output value in 2017
Irish Lamb Price 2017 Forecast
200
250
300
350
400
450
500
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016e
eu
rop
er
10
0k
g
Source: DG AGRI, Author Estimate 2016 and Forecast 2017
Gross & Net MarginsMid-season Lowland Lamb
0
100
200
300
400
500
600
2015 2016e 2017f
eu
rop
er
hect
are
Source: 2015 NFS, 2016 Estimate, 2017 Forecast
Stability in margins not due to output prices or costsPolicy matters – without Sheep Welfare Scheme large decline in margins in 2017
Sheep Conclusions
• Negative outlook for Irish sheep prices
– Despite tightening world market
– Balanced EU demand and supply
– Weaker beef prices & Brexit effect pull down prices
• Stabilisation in Irish and EU lamb production
• Margins in lowland lamb production
– Forecast to be stable in 2017
– Dependent on new Sheep Welfare Scheme
– Without new policy marginally zero net margin
Ag Econ and Farm Surveys Dept.Trevor Donnellan
Outlook for Dairy
Finding the bottom
• Protracted weakness in dairy markets
– Production growth running ahead of demand growth
– Prices falling to balance market
– Higher cost producers in loss making territory
– Major exporters in a game of who blinks first
– Gradual slow down in milk production growth
• Only in mid year did signs of recovery emerge
– But product prices reached lowest level since 2009
EU Dairy Product Prices
-
1,000
2,000
3,000
4,000
5,000
6,000
Jan-08 Jan-10 Jan-12 Jan-14 Jan-16
Euro
per
tonne
Butter SMP Emmenthal
Source: USDA
Milk Production Growth(year to date) 2016
Source: European Commission
European Union• Production growth has
slowed considerably• Stocks building up
United States• Growth predominantly
in Mid West• Stocks building up
New Zealand• Low prices, weather and cow
culling has constrainedproduction
Annual Change in Milk Productionamong key exporters
2012 2013 2014 2015 2016e
Million tonnes
EU28 0.8 1.5 6.8 3.3 1.4
NZ 1.6 -0.4 1.7 -0.3 0.0
US 1.8 0.4 2.2 1.2 1.5
Total 4.2 1.6 10.7 4.2 2.9
Source: Eurostat, DCANZ USDA and author estimates
0
2
4
6
8
10
12
2012 2013 2014 2015 2016e
Mto
nn
es
EU28 NZ US
% Change Monthly EU Milk Production(versus same month previous year)
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%Ja
n-15
Feb-
15
Mar
-15
Apr
-15
May
-15
Jun-
15
Jul-15
Aug
-15
Sep-
15
Oct
-15
Nov-
15
Dec
-15
Jan-
16
Feb-
16
Mar
-16
Apr
-16
May
-16
Jun-
16
Jul-16
Aug
-16
Sep-1
6
2015 v 2014 2016 v 2015
Source: Eurostat
Monthly Irish producer milk prices2007 to 2016
20
25
30
35
40
45
50
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Cen
tp
er
litr
e
(Actual fat incl vat)
Source: CSO Actual fat and protein
Continual price drop in H1 of 2016
Recovery begins in H2 of 2016
Estimated 11% decrease in 2016
2016 average of 27 centDecline of >3c
Dairy Compound Feed Usage 2009 to 2016
Source: FAPRI-Ireland (adapted from DAFM and CSO data)
2016 figure is an estimate
400
500
600
700
800
900
1,000
1,100
2009 2010 2011 2012 2013 2014 2015 2016e
(kg/d
air
ycow
)
Dairy Input Costs per litre 2016• Expenditure change relative to previous year
2016
– Feed down 2%
– Pasture and forage down 11%
– Other Direct Costs no change
– Electricity and fuel down 14%
– Other Overhead Costs down 9%
• Total dairy costs per litre down 7%
Costs of Dairy Production (cpl)2009 to 2016
0
5
10
15
20
25
30
2009 2010 2011 2012 2013 2014 2015 2016
cen
tp
er
litr
e
Concentrate Feeds Pasture and Forage Other Direct Costs
Energy & Fuel Labour Other Fixed Costs
Source: Teagasc NFS (Various Years) and Authors’ estimate for 2016
21 c
27 c
Net Margin per hectare2009 to 2016
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2009 2010 2011 2012 2013 2014 2015 2016e
Eu
rop
er
hect
are
Source: Teagasc NFS, Authors’ Estimate 2016
Down 27%in 2016
GDT Auction Price IndexMovements 2014-16
-15%
-10%
-5%
0%
5%
10%
15%
20%07
Jan
18Fe
b
01A
pr
20M
ay
01Ju
l
19A
ug
01O
ct
18N
ov
06-J
an
17-F
eb
01-A
pr
19-M
ay
01-J
ul
18-A
ug
06-O
ct
03-N
ove
05-J
an
16-F
eb
05-A
pr
17-M
ay
05-J
ul
16-A
ug
04-O
ct
15-N
ov
Source: GDT Platform
2014 2015 2016
Dairy Markets in 2017 ?
• Production growth has slowed in the main export regions
– NZ, EU and US
• Prospects for a better balance in production and
consumption growth
– But stocks will need to absorbed by the market at some point
• Irish milk prices to continue to recover into 2017
– Average price to rise by 20% in 2017 (relative to 2016)
SMP Stocks Overhang Market
Source: Milk Market Observatory
0
50
100
150
200
250
300
350
400
Sep-
14O
ct-1
4N
ov-
14D
ec-1
4Ja
n-15
Feb-
15M
ar-1
5A
pr-1
5M
ay-1
5Ju
n-15
Jul-15
Aug
-15
Sep-
15O
ct-1
5N
ov-
15D
ec-1
5Ja
n-16
Feb-
16M
ar-1
6A
pr-1
6M
ay-1
6Ju
n-16
Jul-16
Aug
-15
Sep-
16
000
ton
nes
SMP Intervention SMP PSA
Dairy Input Costs per litre 2017• Expenditure change relative to previous year
2016 2017
– Feed down 2% no change
– Pasture and forage down 11% down 3%
– Other Direct Costs no change no change
– Electricity and fuel down 14% up 5%
– Other Overhead Costs down 9% up 7%
• Total dairy costs per litre down 7% up 2%
Based on average farm with 5% expansion in 2016 and 6% expansion in 2017
Net Margin forecast for 2017
0
200
400
600
800
1000
1200
1400
1600
2009 2010 2011 2012 2013 2014 2015 2016e 2017f
Eu
rop
er
hecta
re
+13%in prod.
+5%in prod.
Source: Teagasc NFS, Authors’ Estimate 2016 and Authors’ Forecast 2017
+6%in prod.
+73%
-27%
Average Dairy Farm Income
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2009 2010 2011 2012 2013 2014 2015 2016e 2017f
Eu
rop
er
farm -16%
+46%
Source: Teagasc NFS, Authors’ Estimate 2016 and Authors’ Forecast 2017
Dairy in Summary
• Further drop in margins and income in 2016– Low point of market in Irish peak season
– Lower costs per litre
– Capacity to produce more milk limited income drop
– Support payments cushioned income fall
• Recovery in milk prices, margins and income in 2017– Further increase in Irish milk production
– Modest increase in costs of production per litre
– Margins and incomes to increases
– Many farm that are expanding will achieve record income
Ag Econ and Farm Surveys Dept.
Outlook for Farm Incomes
Ag Econ and Farm Surveys Dept.Ag Econ and Farm Surveys DeptTrevor Donnellan
Outlook for Agricultural Incomes
Measuring Income
Output
Costs
Supports
Income
Value of Farm Production
Direct and Overhead Costs of Farm Production
BPS, Areas of National Constraint, BeefGenomics, AEOS, Organics, GLAS
Return to Labour and Capital
-
+
=
Income estimate for 2016• Output
– Prices were down milk, beef, cereals, stable lamb and pigs
– Volume was up in several sectors (milk, beef, pigs, poultry)
– Value down overall
• Input
– Reduction in some input prices (fuel, fertiliser)
– But increases in feed volume (pig and poultry)
• Support payments
– Increased (Full roll out of BPS and GLAS)
• Aggregate Income
– No change
Income forecast for 2017• Output
– Prices up for milk & cereals, down for beef, sheep, pigs
– Volume to increase in milk and beef
– Value up overall
• Input
– Slight increase in prices overall (mainly due to fuel)
– Small increases in input usage
• Support payments
– Increase (Sheep Welfare Payment)
• Aggregate Income
– Up 5%
END
Family Farm Income2013-2015, 2016e & 2017f
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Dairy Beef Rearing Beef Other Sheep Tillage
2013 2014 2015 2016 2017
