Double whammy of lower yields and prices hit cereals returns

The average tillage farm income is forecast to be approximately 60% lower in 2023 than in 2022, the recently published Outlook 2024, Economic Prospects for Agriculture report, which was prepared by the Teagasc Agricultural Economics and Farm Surveys Department, has revealed.

Although cereal farmers will benefit from a range of support measures in 2023, this would bring the average income in the system down to around €30,000.

Additionally, Irish cereal yields will be down significantly for many crops in 2023 compared to 2022, due to less favourable weather during parts of the growing season and again at harvest time.

The spring barley crop and winter wheat crop were particularly affected with yields per hectare down 21% and 14%, respectively. Irish cereal harvest prices were also down over 30% in 2023 compared with harvest prices in 2022, reflecting increased grain availability internationally due to favourable weather conditions in key production regions.

While some cost items such as fertiliser fell in price over the course of 2023, the decline came too late in the growing season to bring about significant savings for benefit cereal farmers.

A review of cereals in 2023 – the key points:

• Despite a decrease in global soft wheat and barley production in 2023/2024, the increase in maize production internationally was enough to slightly increase overall production on the international cereals balance sheet.
• These supply factors, coupled with a relatively flat demand situation, led to a significant decrease in cereal prices at harvest 2023, with on account Irish harvest prices decreasing by over 30%.
• Direct costs of production on Irish cereal farms decreased in 2023 compared to 2022. The largest decreases were for fertiliser and fuel related costs at 15% and 18%, respectively.
• On average, direct costs of production decreased by 5% in 2023 on a per crop basis. Overhead costs allocated to cereal enterprises on tillage farms also decreased in 2023.
• The net effect of the change in output value and input costs was a significant decrease in the average gross margin for cereal crops in 2023. The gross margin per hectare for spring barley, winter barley and winter wheat decreased by €1,070, €945 and €1,320, respectively.
• There remains a wide variation in terms of the economic performance of individual cereal farms nationally. It is estimated that the average cereal enterprise on specialist tillage farms has returned a positive market based net margin in 2023.
• But there is a range around this average figure, with the bottom one third of farms earning a negative market based net margin of approximately minus €480, while the top one third of farms earned approximately €725 per hectare.
• Overall, there was a €670 per hectare decrease in the average market based net margin in 2023, relative to 2022. This can be attributed to significant decreases in cereal price and yields.

Looking ahead

The authors of the report also provide an outlook for 2024 in the report, with net margins forecast to increase on 2023 levels. It is forecast that the average specialist tillage farm will return to approximately €485 market based net margin in 2024. However, it is predicted that approximately 25% of specialist tillage farmers will return a negative market based net margin in 2024.

An outlook for cereals in 2024 – the key points:

• EU grain production increased in 2023. In terms of market supply and demand, there is a lot of uncertainty at present, as stocks to use ratios are variable across wheat, barley and maize.
• Current (November 2023) futures markets indicate that 2024 harvest prices will be slightly higher than those that prevailed at harvest 2023, by over 10%.
• This upward movement in prices can be explained by an expected reversion to trend yields in the EU for 2024 and a forecast for a lower ending stock position after the 2024 harvest.
• A return to 5-year trend yields in Ireland in 2024 would mean a yield increase for most cereal crops.
• Direct costs of production on cereal farms are expected to decrease again in 2024, with key inputs such as fertiliser, seed and fuel expected to decrease.
• Whilst fuel related costs are expected to decrease in 2024, by about 9% on tillage farms, other overhead costs are expected to increase further in 2024, by about 2% compared to 2023.
• The net effect of the forecast changes in output value and input expenditure mean that 2024 gross margins for cereals are forecast to increase over 2023 levels.
• The average gross margin for spring barley in 2024 is forecast to increase by approximately €530 per hectare compared to 2023.
• The average winter barley and winter wheat gross margins are forecast to increase by about €415 per hectare in 2024.

To access the full Outlook 2024, Economic Prospects for Agriculture report, click here.