By Trevor Donnelan, Teagasc economist, Athenry, Co. Galway
At the outset of 2018, the main concern for Irish dairy farming was the anticipated fall in milk price – when would it happen, how bad would it be and how long would it persist?
That question has largely been answered at this stage. Milk prices fell in 2018 and the reduction has been more or less in line with expectations. A difficult production season in Europe and New Zealand has prevented the decline in prices from being worse.
Relatively modest increases in production costs were anticipated for 2018, with prices for feed, fuel and fertiliser also expected to rise a little bit.
A year of two halves
However, the real story of 2018 has been the weather. At a recent agri-food industry event, a speaker was heard to say that he had spent much of the first half of 2018 praying for fine weather and the second half of the year praying for rain. Weather-wise, it has been a year of two halves – each coming with its own problems.
A brief period of ‘normal’ weather followed and then we had the dry spell which quickly turned into a drought.
Soon the silage making calendar was torn up, grass growth collapsed and feed mills found themselves working round the clock.
Irish milk production – which had been expected to increase once again in 2018 – began to slip, with monthly production in July 2018 3% below that of 2017.
While it is difficult to generalise for all dairy farms, feed use has increased dramatically in 2018; silage ground has been grazed and any winter fodder stock that had been produced was already being fed to cows.
While there has been an improvement in grass growth of late, there is still an awful lot of catching up to do and feed use will remain elevated for the rest of the milking season.
Farm incomes
From a farm income perspective, the end result for 2018 is not going to look pretty.
Given the highly unusual nature of the year, it is impossible at this point to provide an accurate estimate of the combined impact on farm income of the reduction in milk price, lower milk deliveries and increase in input usage.
Much of the evidence we have to hand is anecdotal and it will be well into 2019 before we have all the data gathered to assess the full effect of the weather difficulties on incomes in 2018 (and for that matter 2019).
The best guess at this point is that, on average, Irish dairy farm income in 2018 could be down to half its 2017 level – perhaps somewhere in the €40,000-50,000 range.
Factors such as farm location, soil type and stocking density will mean that the effect of the adverse weather on individual farms will vary to some extent.
Looking ahead to 2019, weather conditions will still be a major factor. Farmers will have their fingers crossed for a short winter; but even a normal winter is likely to be problematic from a cost perspective, with feed requirement likely to be higher than normal.
From the dairy market perspective, the lower than anticipated growth in global milk production in 2018 will be of benefit in firming up milk prices in 2019.
As things stand it does not look like there will be any major movement in milk prices in 2019, with a period of prices stability likely.
Assuming 2019 brings a return to a normal, or near normal, grass growth season, Irish dairy farm incomes should recover on the basis that input expenditure will drop back from the elevated levels of 2018.
There will still be a need to rebuild silage reserves for winter 2019 and beyond to create a feed buffer on individual farms to withstand any future weather extremes.
It is hard to anticipate at this point what the Irish milk production volume for 2019 might look like; this will depend in part on changes in the dairy cow population, which may suffer to some extent due to culling in the current production season as a means to manage feed requirements.