Report: Beef incomes forecast to drop by 12%

Incomes for beef farms look bleak for the foreseeable future – with an estimated decline of 12% forecast, according to Teagasc’s mid-year outlook report for July 2018, published today (Tuesday, July 31).

This is the case for both suckler beef and finishing farms, in spite of improved production performance compared to 2017, the report says.

Production up

Irish beef production has so far increased by about 2% in 2018, with greater prime cattle availability for the year to date partially offset by lower slaughter weights.

In early 2018, finished cattle prices have been higher than in 2017. Prospects for cattle prices over the rest of the year are stable. Growth in EU demand and buoyant world markets will support EU and Irish prices at close to or just above 2017 price levels, the report explained.

The report highlights that resilience in domestic demand for beef is expected to lead to increases of about 2% in finished cattle prices in 2018.

Through the first two quarters of 2018, cattle prices were generally higher than prices in the same period in 2017. The improving demand from EU consumers has been reflected in improving finished cattle prices, according to the mid-year update.

EU cow prices are approximately 1% higher than in 2017, while heifer prices have remained stable relative to 2017. EU R3 steer prices have reportedly increased by less than 1%, while young bull prices have increased by approximately 3% relative to the first five months of 2017.

Irish weanling prices so far in 2018 have also been marginally higher than last year, Teagasc added.

However, the growth in the number of cattle slaughtered will be offset somewhat by the impact of increased dairy genetics in the national herd on average cattle slaughter weights, the report noted.

Costs soar

The direct costs of production on Irish cattle farms are dominated by purchased feed, pasture and forage costs. To date in 2018, difficult grass growing conditions have meant that grass availability on Irish cattle farms has been well below normal.

As a result, the overall cost of production in 2018 is set to be significantly higher than last year.

Higher input prices are accompanied by higher fuel prices and significantly increased feed usage driven by adverse grass growing conditions.

Aggregate sales of beef feed in Ireland in Q1 2018 are up almost 20% on volumes sold in in Q1 2017.

The rapporteurs put this increase in beef feed largely down to the difficult conditions in the first six months of the year, with poor grass growth in the summer exacerbating this.

As a result the report estimates that, on cattle finishing farms, volumes of feed purchased during 2018 will be 20% higher than in 2017 – while on single suckling farms the volume of concentrate feed purchased will have increased by 10%.

So far in 2018, cattle feed, fuel and fertiliser prices have been higher than in 2017.

Increases in input use on cattle finishing farms – in particular feed – when combined with higher prices for inputs in 2018, is expected to lead to significantly higher costs of production.

Pricing

Moderately higher finished cattle prices in Q1 and Q2 2018 support an increase in the value of output.

This improvement in output will be surpassed by increasing direct costs. Gross margins on cattle finishing farms will fall by 9%, while those on single suckling farms will also decline on 2017 levels – down 6%.

Higher output per hectare, and a small improvement in prices, will not be sufficient to prevent gross margins earned on cattle finishing enterprises from declining by 9% relative to 2017, the outlook document warns.

On single suckling enterprises, stable calf and weanling prices will be reflected in stable output value per hectare. With forecasted higher costs of production, the gross margins are expected to decline (-6%) in 2018.

The projected declines in enterprise gross margins largely reflect changes in input costs. Cattle farms have, on average, a high dependence on direct payments.

Despite the presence of these direct payments, the average Family Farm Income (FFI) on cattle rearing farms is forecast to decline by 12%, while average FFI on other beef enterprises is also forecast to decrease by 12%.

Markets

EU beef imports were 20% higher in the first four months of 2018, relative to the same period in 2017. A new system for the management of a particular tariff rate quota (TRQ) is considered responsible for some of the increase during the January-April period. EU imports of beef are expected to increase by 6% for 2018.

The decline in the value of the Brazilian real has increased the competitiveness of Brazilian beef exports to the EU.

Brazil had limited deliveries to the EU in 2017 due to a meat scandal, but it has since recovered and increased exports by one-third. Imports from Argentina have also increased significantly in 2018.

With a forecast of modest growth in the indigenous supply of beef in the EU, the outlook for cattle prices in Ireland and the EU for 2017 hinges on the prospects for further growth in domestic EU demand and for beef exports to non-EU markets.

The outlook for economic growth in 2018 in the EU continues to be positive. However, UK economic growth is forecast to be weak in 2018 (1.4%).