According to the recently published Teagasc Outlook projections, Irish tillage incomes could increase by as much as 40% to €42,000 next year.
So, what are the key factors that will drive this trend?
According to Teagasc economists, harvest prices within the cereals sector in 2024, compared to 2023, were mixed, with some prices slightly lower and some slightly higher.
Furthermore, yields for the major Irish cereal crops were mixed, with some crops tending to yield lower, while other crops tended to yield higher than those achieved at harvest 2023.
Taken together, these developments resulted in mixed gross output values on a per hectare basis in 2024 relative to 2023.
However, there was some reprieve in direct costs of production in 2024, associated with a decrease in seed and fertiliser costs in particular.
The limited movement in cereal prices at harvest 2024 was influenced by a slight increase in global harvest of grains, but on the other hand, a decrease in the stocks to use ratio of the major grains on the international balance sheet.
Input costs
Input costs will always have a major impact on tillage farm performance levels.
Whilst there was some reprieve in fertiliser prices during the course of 2023, much of the price decreases happened in the second half of the year.
However, much of the demand for fertiliser on tillage farms occurs in Q1 and Q2.
With further declines evident on a monthly basis throughout the first half of 2024, it is estimated that fertiliser cost on tillage farms will be reduced in 2024.
On a calendar year basis, taking purchasing patterns into account, it is estimated that fertiliser prices for NPK-based products are down 40% in 2024 compared to 2023.
In terms of the composition of total costs, seed represented about 5% of total costs in 2023.
In 2024, cereal farmers experienced a decrease in seed costs relative to the previous year given that cereal prices at harvest decreased in 2023 relative to 2022.
This price decrease has transmitted to seed prices, with blue label seed costing around €735/t, which was about 5% lower than 2023 seed prices.
Meanwhile, the annual average increase in crop protection products in 2022 was 20%, with a further 9% increase in 2023, and an estimated further 4% increase in 2024.
This increase in prices is attributed to inflation in the energy market, which is important for the manufacture of products and also supply and demand issues associated with post-pandemic supply shortages globally.
Total expenditure on all input items is estimated by Teagasc to have decreased in 2024 relative to 2023.
The most significant decrease in expenditure on a per hectare basis occurred for fertiliser and seed, which are estimated to have decreased by 40% and 5% respectively.
Feed prices are estimated to have decreased by about 14%, (which is relevant for subsidiary enterprises on tillage farms).
On average, the estimated decrease in total direct costs was approximately 15% in 2024 relative to the 2023 level, on a per hectare, per crop basis.
Taking account of grain prices, straw values and subsidies available to the sector and fixed costs, Teagasc has estimated that net margins for the typical cereal enterprise in 2024 are significantly higher than in 2023.
This reflects the upward movement in gross margins and less significant movement in overhead costs.
For the best performing one-third of tillage farms, the estimated net margin for 2024 was approximately €575/ha compared to the average, where the net margin was approximately minus €10/ha.
Prospects for 2025
Looking ahead, it is projected that direct costs are set to increase by about 1% in 2025, in line with projections for general inflation in 2025 and basing the forecast on an annual average basis.
At this early stage in the production season anecdotal evidence on land rental prices for 2025 is mixed.
However, due to the continued cash flow pressure on tillage farms in 2024, it is assumed that there will be little inflationary pressure on land rent in 2025.
Meanwhile, the very slight increase in farm gate cereal prices at harvest 2025 which is borne out in futures trading prices at the moment, reflects the anticipated decrease in carry out stock levels from the current marketing year.
Other supply side bullish factors include anticipated reductions in stock available for export from the Black Sea region, over the course of the 2025/2026 marketing year.
Additional price bullish factors include demand factors, where there has been an increase in demand for cereals, in response to reduced feed prices.
Direct costs are forecast to be similar in 2025 relative to 2024, due to the forecast for little movement in fertiliser costs, seed costs and fuel.
However, some direct costs of production are forecast to increase by small amounts in 2025, crop protection by 4% and all other direct inputs by 1%.
In conclusion, the upward movement in margins projected for the year ahead is associated with the yield and price forecasts for 2025 and a decrease in some key direct cost items.
Overall, the net margin for the average cereal enterprise in 2025 is forecast to increase by about €200/ha relative to 2024.