41% drop in gross margin on cattle-finishing farms in ‘no-deal’ Brexit

With the threat of Brexit looming closer each week, farmers now have to weigh up the potential risk factors which will be associated with a ‘no-deal’ trade scenario.

As part of the annual Teagasc Economic Outlook Conference – Jason Loughrey, of Teagasc, presented a review of the beef sector for 2020 and a predicted future outlook for 2021.

The presentation included a review of how a potential ‘no-deal’ will impact on beef prices at the beginning of next year. The outlook highlighted a significant decline in output prices on beef farms in the event of a no-deal Brexit. Commenting on this Loughrey explained:

This is brought about because exports – which have been previously destined for the UK  – are no longer competitive under the current UK global tariff schedule.

For 2020, the UK market equated to 47% of Ireland’s total beef exports.

No-deal Brexit

As part of Teagasc’s forecast, cattle finishers will be hard hit in terms of their gross margins, with a decrease of 41% per hectare predicted.

Cattle-rearing farms are not escaping from this price decrease either, with a 36% drop in gross margin. This is impacted by a number of factors, with Loughrey stating:

Under the Food and Agricultural Policy Research Institute (FAPRI) Ireland model, we estimate steer prices will decline by 19%, this will also filter through to younger cattle prices.

Converting this into monetary terms, the average gross margin for cattle-finishing farms in 2020 reached €462/ha. In 2021 this average gross margin is predicted fall by €190/ha, equating to €272/ha. The average net margin for 2020 was minus €42/ha, which is predicted to drop down to minus €236/ha for 2021, according to Teagasc.

On single suckling farms, a total average gross margin of €472/ha for 2020 is expected to decrease to €302/ha for 2021. Net margins are foreseen to drop to minus €200/ha in 2021, having previously been presented as averaging minus €28/ha for 2020.

Meanwhile, prices for total input costs on beef farms will potentially rise by 1% consisting of an increase in price of feed, electricity and fuel along with a small percentage of other direct costs.

Trade deal Brexit

In the hopes of a deal being agreed for Brexit, there will still be some challenges presented to the beef sector.

Loughrey explained: “Covid-19 will still place pressure on the food service sector, which is really import for our food exports.

Both UK and European beef production are set to decline, which is seen as a positive, in a trade deal scenario.

In terms of the domestic market, Loughrey went onto state: “Prime beef production may be down slightly but overall it will be similar for 2021.”

There will be no avoiding a rise of input costs unfortunately, along with exchange rates playing an unknown impact factor due to their volatility.