Average net margins on dairy farms forecasted to decrease by 23% per hectare in 2021

The average net margin on dairy farms in 2021 is forecasted to decrease by 23% per hectare, according to Trevor Donnellan of Teagasc.

The average net margin on Irish dairy farms is forecast to hit €1,004/ha in 2021, which is a substantial fall of €298/ha in comparison to the 2020 figure of €1,302/ha.

Speaking at the Teagasc Outlook for 2021 this morning, Trevor said that the dairy sector is facing into an uncertain environment due to Brexit and Covid-19.

The assumptions of Trevor’s presentation revolved around a no-deal Brexit.

Reduction in milk price forecast for next year

In 2021, Trevor said that production volume is forecasted to increase by 3%; however, he noted that the outlook for Irish milk prices is uncertain in the case of a ‘hard Brexit’.

He added: “From a dairy perspective, the concern around a no-deal Brexit is around cheddar exports to the UK.

There is quite a volume of Irish cheese stock in the UK at present that won’t be subject to tariffs. But, if we end up with a no-deal Brexit, the headache of what we do with our cheddar production for the first half of the year, next year, at least, will be a concern due to the introduction of tariffs.

“It could end up that the cheddar that would have been destined for the UK will have to be used up in other markets.

“Therefore, because of this, we have factored in a 7% reduction in the Irish milk price for 2021 as a result of that. That means that would take the milk price from 34.4c/L for 2020 back to about 32c/L [based on actual constituents and vat].

“So, in a no-deal Brexit, we are going to see a negative impact on milk prices in 2021, barring some trade deal emerging between now and the end of the year.”

Looking to 2021

Looking to 2021, as already mentioned, an average net margin decrease of 23% is forecasted, which will equate to a decrease of nearly €300/ha on average.

Trevor added: “Our assumption is that milk production will continue to increase next year by 3%. In summary, in 2021, we are forecasting no increase in milk yield; however, we are expecting an increase in milk production due to an increase in the dairy cow population [+3%].

It looks like there will be a marginal increase in the cost of production but nothing too major to be overly concerned about.

“So, the biggest concern is the forecasted 23% decrease (or €300/ha) in net margin per hectare for 2021 in light of a no-deal Brexit.”