Sheep farm returns on track to reach a 4-year high

The returns generated on Irish sheep farms are expected to increase strongly this year, according to Teagasc’s Jason Loughrey.

Speaking at Tuesday’s Annual Review and Outlook 2018, the Teagasc research officer said: “There are no great changes in 2017 in terms of the supply and demand picture; but there’s been slight increases in EU and Irish prices.”

This year, European lamb prices were marginally higher than in 2016. Irish prices are also estimated to have been higher (+ 2%) than last year.

Overall in 2017, the value of market-based gross output for the mid-season lamb system is estimated to have increased strongly (+ 6%). This is due to increases in the volume of output per hectare and higher output prices.

At a national level, it’s estimated that the volume of lamb produced in 2017 is over 11% higher than in 2016.

While some of this increase in production reflects higher levels of ewe slaughter and the slaughter of hoggets carried over from from 2016, there has also been a 5% jump in lamb slaughterings.

Due to both the increases in price and throughput, he said, the gross margins per hectare for Irish, mid-season, lowland, lamb producers are estimated to have increased strongly in 2017.

Overall, margins are well up and a good chunk of this can be accounted for by the Sheep Welfare Scheme payment of €10/ewe.

“If you assume a stocking rate of 7 ewes per hectare, you’re talking about a payment of €70/ha; it’s an important part of the story.”

Teagasc estimates suggest that the gross margin on mid-season, lowland enterprises will reach €779/ha this year – the highest level over the previous four years.

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What does 2018 hold for sheep producers?

Loughrey continued: “There has been no great change in production costs over the period (2017) and no great change has been forecast for 2018.”

The outlook for input prices in 2018, from the perspective of Irish sheep farmers, is not as positive as in 2017, he said.

The prices of the key inputs for sheep production are forecast to increase. However, the magnitude of these increases is likely to be relatively modest.

Cost changes:
  • Expenditure on concentrates: + 2%;
  • Pasture and forage costs: + 5%;
  • Other direct costs: + 1.4%.

The Teagasc representative said: “2017 has been a very good year for sheep farmers. Although we see some disimprovement in 2018, it will still remain a relatively good year compared to the last decade.”

Next year, it’s predicted that Irish prices will decline by 3%. Overall, he expects Irish sheep prices to remain slightly above 450c/kg dead weight.

“One of the reasons why we see some cooling in the lamb price is that there was supply growth in the EU and a rise in imports from New Zealand.”

The weakening of the New Zealand dollar, he said, is likely to see more New Zealand origin lamb come available on the market next year and the country is likely to fill its export quotas to the EU next year.

Given the negative outlook for lamb prices in 2018, and the forecast increase in direct costs of production, the average gross margin earned from sheep farming is expected to decline next year.

The gross margin per hectare for the mid-season lamb system in 2018 is forecast to be €731/ha – a 6% decrease on Teagasc’s 2017 estimate.

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