Average dairy net margins forecast to hit €1,200/ha next year

The net margin on the average Irish dairy farm is forecast to hit €1,198/ha in 2017, work carried out by Teagasc has shown.

The Teagasc Outlook for 2017 shows that this is a considerable step up on both 2015 and 2016, but might just fail to the record highs witnessed in 2014.

The average net margin/ha in 2016 is estimated to be €795/ha, but Teagasc predictions suggest that it will range from €1,250-1,400 next year – an increase of 58-78%.

Teagasc Economists have forecasted this rise on the basis of higher milk prices in 2017, which are estimated to increase by 15-20% on 2016 levels, and a 6% rise in milk production relative to 2016.

Overall, it says, dairy margins at farm level will be influenced by not just changes in margin/ha, but also by the number of hectares farmed by the dairy enterprise.

This has been increasing in recent years and is anticipated to increase further.

Little change in costs

Teagasc analysis also shows that farm-gate costs, with the exception of fuel, are forecast to show little change in price in 2017 when compared to 2016 levels.

The 6% increase in milk production envisaged for 2017 takes place on a 3% larger land area than in 2016 and it is therefore assumed that milk production/ha will increase by 3% in 2017 relative to 2016.

Teagasc also assumes that this additional milk will be produced at a low marginal cost, which contributes to the higher net margin/ha achieved.

The production costs for the marginal litres are lower, it says, since some cost items such as fertiliser, other direct costs and hired labour do not increase in a linear fashion when production increases.

Graph: Average Gross Output and Net Margin/ha for 2012-2017

Source: Teagasc
Source: Teagasc

A look back at recent years

According to Teagasc, dairy incomes reached record levels in 2014, with marginally lower milk prices more than offset by lower costs of production.

However, this was followed by 18 months of negative price developments on international dairy markets, which only began to reverse in the middle of 2016.

The low milk prices in 2016, it says, wiped out any income benefit of increased milk production, but Irish farm-gate milk prices are expected to recover gradually in 2017.