Agricultural Economics and Farm Surveys Department Teagasc Trevor - - PowerPoint PPT Presentation

Agricultural Economics and Farm Surveys Department Teagasc

Ag Econ and Farm Surveys Dept. Trevor Donnellan Macroeconomic Outlook

Economic & Political Developments 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 exchange rate 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

sterling per euro

Source: ECB

Monthly Euro US dollar exchange rate 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

dollars per euro Source: ECB

Brent Crude price 2007 to 2016

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 currency per barrel

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

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 % Thousands 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 for commodities 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

Index 2010 = 100

CSO Index of all fertilisers Cereals fert. index

Source: CSO with Authors’ Estimate 2016 and Forecast for 2017

Prices to increase slightly off September 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

200 400 600 800 1000 1200 S barley W wheat W barley € per hectare 2015 2016

Cereal Enterprise Net Margin (‘15 – ’16)

Source: NFS and Authors own estimates

The average cereal farmer will make a negative market based net margin in 2016 of approx. €100 per hectare

• 600
• 400
• 200

200 400 600 Low margin Moderate margin High margin Average € per hectare 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 Sheet

Marketing Year

Source: Strategie Grains

Production (& ending stocks) increased for most cereals ‘16/’17

0.05 0.1 0.15 0.2 0.25 0.3 0.35 Wheat Barley Maize Stocks to Use Ratio 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 € per tonne (20% moisture) 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 margins still less than or on a par with 2015 margins 200 400 600 800 1000 1200 S barley W wheat W barley € per hectare 2015 2016 2017

Cereal Enterprise Net Margin (‘15 – ’17)

Source: NFS and Authors own estimates

The average cereal farmer will continue to struggle to make a positive net margin in 2017

• 500
• 400
• 300
• 200
• 100

100 200 300 400 500 Low margin Moderate margin High margin Average € per hectare

2015 2016 2017

Summary of 2017 Gross & 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 negative

market based net margin

• Top one third of farmers to have a market based net margin of
• approx. €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 Market 2016

Wheat & Maize Production

• MILLION TONNES

Global Wheat

USDA 2015

715 725 736 745 194 212 241 249

100 200 300 400 500 600 700 800 900 2013-14 2014-15 2015-16 2016-17 Production C Stock

991 1009 960 1031 175 208 209 218

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

715 725 736 745 194 212 241 249

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

283 317 313 336 63 76 78 82

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

T

• tal

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)

* T

• tal 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)

* T

• tal 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

Cent per kg dead wt.

Total Cost Pig Price

Margin Over Feed (c/kg dwt.)

Margin Over Feed % 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 Outlook

CBOT Ingredient Outlook

+ 23 % + 11 %

• 2 %

Feed Ingredient Outlook

• Global supplies will ensure relatively

stable (low) ingredient prices until Autumn 2017

– With the possible of soyabeans

• Soyabeans open to significant hedge fund

speculation if crop forecasts become mildly 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 in

Chinese 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 China

cooling in 2nd half of 2017

• No A.S.F. outbreak in Germany or Denmark.

Year 2012 2013 2014 2015 2016 2017

Cent / kg dwt

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 2016

Total value to the Irish economy €2.2 billion Aggregate employment figure 12,000 Total forest area in Republic of Ireland 750,000 ha (11% of total land area) 47% of forests are privately owned 85% of private forest owners are classified as farmers

• Govt. forestry programme funding in

2016 €113.8 million Sources: Forest Service, 2015; Phillips et al., 2016

Annual planting from 2011, with 2016 forecast (f) & 2017 target (t)

5500 5700 5900 6100 6300 6500 6700 6900 2011 3013 2013 2014 2015 2016 (f) 2017 (t)

hectares

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 prices

according to geographical and site factors .

• Currency fluctuations negatively

affecting the price per m3 offered in the 2nd half of 2016.

• This situation is likely to continue into

2017.

10 20 30 40 50 60 70 80

€/m3 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

UK 58%

Netherlands 10%

Northern Ireland 7% Belgium 5% Germany 4% Norway 3% Others 13%

Key export markets (%) for panel products manufactured in the Republic of Ireland (2011-2015)

Source: EUROSTAT 2016 &. Drima Market Research

Timber supply & demand in Ireland

• The net demand to increase by

6% to 5.48 million m3 by 2017.

• The total net realisable volume

(NRV) production in 2017 is forecasted to be 3.96 million m3.

• Forecasts indicate that the

private sector NRV will fall slightly (-6%) to 914,000 m3 in 2017.

• By 2025, 48% of the forecasted

6million m3 NRV production will be from private forests.

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

Volume (000 m3 overbark)

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 Volume Production to 2035 (000m3)

Mobilising the private timber resource

• The number of GFLs issued

to Sept. 2016 is 42% higher than the corresponding period in 2015.

• The area (ha) licensed for

thinning and clearfell by Sept. 2016 is already 11% higher than the 2015 total.

• Higher proportion of

thinning licences issued.

• Certification will become an

issue for private forest

• wners and for mills.

5000 10000 15000 20000 25000

2010 2011 2012 2013 2014 2015 2016 (Sept.)

Thin Clearfell Total

hectares

Area (ha) of felling licences issued for private forests, 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 national strategic goals.

• The mobilisation of the private timber resource is crucial to

meeting the forecasted 3.5% increase in domestic sawmilling demand, and the overall 6% net demand increase, in 2017.

• The on-going development of forest owner groups/ clusters will

continue 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 have immediate 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 cattle

prices

– 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 of Production 2016 & 2017

200 400 600 800 1000 1200 Single Suckling 2015 Single Suckling 2016 Single Suckling 2017 euro per 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 of Production 2016 & 2017

200 400 600 800 1000 1200 Cattle Finishers 2014 Cattle Finishers 2015 Cattle Finishers 2016 euro per 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 and Net Margins

• 100

100 200 300 400 500

Single Suckling 2015 Single Suckling 2016 Cattle Finishers 2015 Cattle Finishers 2016

euro per ha

Source: 2015 Teagasc NFS, 2016 Estimate, 2017 Forecast

Margins slightly lower in 2016

2015 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 euro/100kg cwe UK Ireland Strong negative correction in 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 million dairy cows

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 million suckler cows

Recent contraction in EU suckler cows reversed with growth in ES & FR Aggregate 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 Million head 2014 2015 2016

Total cows 3.6% higher in September 2016 Dairy +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 50 100 150 200 250 300 50 100 150 200 250 300 350 400 450 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f euro per 100kg lw euro/100 kg cw

R3 Steer Weanling

Cattle Enterprise Net & Gross Margins

• 200
• 100

100 200 300 400 500

Single Suckling 2015 Single Suckling 2016 Single Suckling 2017 Cattle Finishers 2015 Cattle Finishers 2016 Cattle Finishers 2017

euro per 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 to

absorb 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 Situation 2016

• 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 sheep

farmers 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 Enterprise Costs of Production

200 400 600 800 1000 Lowland Lamb 2015 Lowland Lamb 2016 Lowland Lamb 2017 euro per 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 euro per 100kg

Source: DG AGRI, Author Estimate 2016 and Forecast 2017

Gross & Net Margins Mid-season Lowland Lamb

100 200 300 400 500 600 2015 2016e 2017f euro per hectare

Source: 2015 NFS, 2016 Estimate, 2017 Forecast

Stability in margins not due to output prices or costs Policy 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 constrained production

Annual Change in Milk Production among 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

2 4 6 8 10 12 2012 2013 2014 2015 2016e M tonnes 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% Jan-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-16 2015 v 2014 2016 v 2015

Source: Eurostat

Monthly Irish producer milk prices 2007 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

Cent per litre

(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 cent Decline 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/dairy cow)

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

5 10 15 20 25 30 2009 2010 2011 2012 2013 2014 2015 2016

cent per litre

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 hectare 2009 to 2016

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2009 2010 2011 2012 2013 2014 2015 2016e Euro per hectare Source: Teagasc NFS, Authors’ Estimate 2016 Down 27% in 2016

GDT Auction Price Index Movements 2014-16

• 15%
• 10%
• 5%

0% 5% 10% 15% 20% 07 Jan 18 Feb 01 Apr 20 May 01 Jul 19 Aug 01 Oct 18 Nov 06-Jan 17-Feb 01-Apr 19-May 01-Jul 18-Aug 06-Oct 03-Nove 05-Jan 16-Feb 05-Apr 17-May 05-Jul 16-Aug 04-Oct 15-Nov

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

50 100 150 200 250 300 350 400 Sep-14 Oct-14 Nov-14 Dec-14 Jan-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-15 Sep-16 000 tonnes 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

200 400 600 800 1000 1200 1400 1600

2009 2010 2011 2012 2013 2014 2015 2016e 2017f

Euro per hectare

+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

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

Euro per 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 Dept Trevor 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, Beef Genomics, 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 Income 2013-2015, 2016e & 2017f

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