In its annual outlook for the cereal sector outlined today at the Teagasc Outlook 2014 conference in Dublin by economist Dr Fiona Thorne, the Irish Agriculture and Food Development Authority forecasts minimum changes to cereal farmers’ gross margins in 2014.
However Dr Thorne cautioned: “If you look at historic futures market data and match it up with actual prices the following year, we know that the futures market doesn’t always get it right.”
She continued: “Based on futures market data the price could go as low as €130/tonne or could go as high as €230/tonne. So the futures market is not always correct. Using the highest probability the likelihood is that prices in 2014 will be similar to 2013.”
In terms of yields, assuming a return to normal weather conditions, Teagasc estimates that yields should decrease in 2014. The economist explained: “In 2014 this would mean a reduction in yields for most crops form the high yields that we had in 2013.”
Dr Thorne also noted that input costs are expected to decrease seven per cent in 2014 due to lower fertiliser prices in particular.
This being the case Teagasc is estimating that in terms of margins much will remain unchanged.
“The story is it doesn’t change a whole lot for 2014,” according to Dr Thorne.”Winter wheat is down only about €5 per ha and spring barley up about €20 per ha.”
Review of 2013
In reviewing the performance of the cereal sector in 2013, Dr Thorne noted: “Although there was a slight decline in cereal area. About a four per cent decline in cereal area in 2013 on foot of the bad weather that we had at the backend of 2012.
“The bigger news story is the change in the composition of our cereal area in 2013 relative to 2012. We have had a large increase in spring plantings relative to winter plantings as a result of weather.”
“Spring barley saw a big gain with winter wheat the big loser, “she added.
On a positive note yields were seen to increase across the board in 2013. Dr Thorne outlined that spring barley was up about 10 per cent and winter wheat was up about 12 per cent in 2013.
Also of significance this year was the decrease in moisture contents. “Because of the good harvest conditions that we had this year,” she said.
In 2013 Teagasc has seen in the region of 11 per cent production levels increase relative to 2012. according to Dr Thorne, this emanates from the increase in yields notwithstanding the fact there was a slight decline in area.
In terms of price Dr Thorne noting the impact of global markets on price. “Production was up across the board for all cereals last year. This volume change had a downward impact on price. Due to this there was about a 25 per cent decline in farm gate cereal prices in 2013 relative to 2012.”
However the economic team also observed: “Cereal price is not just determined by harvest price anymore. With about 20 per cent of farms year on year engaging in forward contracts.
“The difference between the price at the harvest and the average price received by farmers engaged in forward contracts in 2013 was about a €25 per tonne bonus.”
According to Dr Thorne, other factors to take into account when you want to come up with an overall farmer price for cereals include time-of-forward sales, moisture levels and straw prices. Accounting for these Teagasc estimates that the cereal price in 2013 was down about 20 per cent.
The knock-on impact of that reduction in gross margins was not huge, the team found. Dr Thorne noted: “There was not really a whole lot of change between 2012 and 2013 in terms of gross margins. Winter wheat was up about €10 per ha and spring wheat/barley was down about €120 per ha on 2012.
“For the cereals side changes of these size not significant,” she added.