A new report, by economists at Teagasc, provides an update on the forecast average margins and incomes which are likely across the agricultural sector in Ireland in 2023.
Agriculture continues to face substantial input price inflation, much of it prompted by Russia’s illegal invasion of Ukraine. Agricultural production costs in 2023 look like they will be little different to the high level experienced in 2022. At the same time, there have been significant negative price movements in some farm output prices, which will reduce margins in 2023. This is particularly the case in the dairy and tillage sectors, which enjoyed record incomes in 2022.
While over half the year has passed, making accurate income forecasts across the various farm systems for 2023 remains challenging. Some critical data relating to trends in the volume of input usage and changes in the price of some farm inputs are not readily available at this time.
Dairy farms and Tillage farms are forecast to experience a substantial drop in incomes in 2023 compared with last year. Incomes on Cattle Rearing farms are expected to rise from a low level in 2022. Incomes on Cattle Other farms (mainly finishers) are also expected to increase slightly due to higher finished cattle prices, but there remain significant challenges with the continuation of elevated feed prices and the seasonality of beef production. Sheep farm incomes are forecast to remain relatively unchanged on the 2022 level.
A substantial drop in dairy farm income in 2023 is forecast, with a decrease in excess of 50% on the 2022 level now possible. This decrease would bring the average dairy farm income back to €70,000. For the second year in succession, no increase in aggregate Irish milk production is forecast. While dairy cows numbers have increased marginally in 2023, this has been offset by slightly lower milk yields. Weather conditions have been unfavourable at times this year and this is evident in grass growth figures, which are below the long term average.
Irish Dairy farmers benefitted from a dramatic increase in milk prices in 2022, but there has been a sharp reduction in milk prices in 2023, as the global milk supply has increased. Average milk production costs in 2023 are likely to remain close to the 36 cent per litre average figure recorded in 2022, leaving higher cost producers in particular with very low margins.
The average income on Cattle Rearing farms is forecast to increase by 15% in 2023. This would bring the average Cattle Rearing farm income up to about €10,800. This forecast increase is partly due to the introduction of both the Suckler Carbon Efficiency Programme (SCEP) and the Agri-Climate Rural Environment (ACRES) scheme. Mart prices are expected to be slightly higher in the autumn of 2023. However, elevated feed prices and overhead costs mean that the average net margin (profit exclusive of direct payments) on Cattle Rearing farms could remain negative in 2023.
The average income for Cattle Other farms in 2023 is forecast to increase by 5% to about €19,800. This increase in income in 2023 can be attributed to higher finished cattle prices, as total production costs are likely to remain largely unchanged. On an annual basis, total beef production is set to be lower in 2023 relative to 2022. However, beef production in the third quarter is expected to increase and possibly surpass the levels observed for the same period in recent years. The majority of farms in both cattle systems will continue to benefit from the Fodder Support Scheme introduced in 2022.
Sheep farms have experienced a 5% fall in lamb prices so far in 2023 and, as with other farm enterprises, production costs on sheep farms remain at elevated levels. While EU sheep meat supply is down in 2023, consumption is expected to remain similar to the 2022 level, resulting in positive movement in average EU prices. The price attractiveness of the EU market is leading to increased imports, particularly from the UK. Irish prices are forecast to stabilise over the second half of the year and for the year as a whole are estimated to remain modestly positive. The average income on Sheep farms is forecast to increase marginally, by about 5% in 2023. Some of this increase in income is as a result of the newly introduced ACRES scheme, with a further boost coming from increased output on sheep farms with a secondary cattle enterprise. This could bring the average Sheep farm income to about €17,300 in 2023.
In the Tillage system, unfavourable weather during parts of the growing season in 2023 has meant that Irish cereal yields will be down significantly for many crops compared to 2022, with the spring barley crop particularly affected. The weather woes have continued into harvest time, with persistent rain in many regions to date impacting progress on harvesting.
While 2023 EU production volumes of wheat and barley in particular are estimated to be well down on 2022 levels, the global production and ending stocks for maize continue to have an impact on global cereal prices. While there is some nervousness in the market at the moment following the latest closure of the Black Sea routes to Ukraine cereal exports, futures markets at present are still forecasting a significant downward movement in harvest prices in 2023 compared to 2022, with price decreases in the order of over 20% likely.
While additional support was available this year via the Straw Incorporation Measure, Tillage Incentive Scheme and Organic Farming Scheme, this will not be enough to negate the significant decrease in forecast market based gross output for the average farm. There has been some respite in the form of reductions in fertiliser and fuel prices this year, however it is still expected that much of the cereals grown in 2023 will have total costs of production higher than in 2022. The average Tillage farm income is forecast to be over 50% lower in 2023 than in 2022. This would bring the average income in the system down to around €37,000.
Irish pig prices have risen substantially over the last 12 months as EU pig production has fallen. After 20 months of continuous losses, due to record high feed and energy prices, Irish pig producers have now returned to a profitable situation. Composite feed and electricity costs are gradually reducing as 2023 progresses, which has resulted in the pig sector returning to a profitable status from May 2023 onwards. However at current profitability levels, it is estimated that it may be April 2024 before the losses incurred in 2021 and 2022 are fully recouped. These losses have amounted to €520,000 for the average pig unit in Ireland.
All of these income calculations are in nominal terms. This means that they do not factor in general inflation and the impact that this has on the purchasing power of incomes earned in agriculture. While the rate of general inflation has fallen in Ireland in 2023, it remains well above the ECB target level of 2%. While many farms, particularly dairy and tillage farms, will experience a decline in nominal income in 2023, even farms with stable nominal incomes in 2023 could still experience a decline in real income if consumer price inflation remains ahead of nominal income growth rates.
In December a further assessment of farm incomes for 2023, along with income forecasts for 2024, will be produced by Teagasc economists.
See the full Situation and Outlook July 2023 report at https://www.teagasc.ie/publications/