What lies ahead for sheep sector margins in 2024?

Anne Kinsella and Kevin Hanrahan, Agricultural Economics and Farm Surveys Department, Teagasc, look ahead to 2024 and what it may entail for sheep sector gross margins.

In 2024, Irish lamb prices are forecast to increase modestly on already record high price levels received in the preceding years, as high prices continue to prevail in EU and supplies remain tight. It is forecast that average prices will remain somewhat higher than five year average years’ price levels.

For 2024, prices are forecast to increase by circa 1%. Continental EU markets account for the majority of Irish lamb and although economic disruptions continue to impact consumer demand, tight global markets for sheepmeat and export demand for Irish sheep are forecast to support Irish lamb at close to current price levels.

Expenditure

The outlook for input expenditure in 2024, from the perspective of Irish sheep farmers, is also more positive than in 2023. Prices of the majority of the key inputs to sheep production are forecast to either remain relatively constant or decline slightly, with electricity, fertiliser and concentrate feed prices just some of the inputs forecast to decrease in 2024 year. Input volumes used in 2024 are forecast to remain unchanged (on a per hectare basis). Total costs on Irish sheep farms are forecast to decrease by 3% in 2024. Direct costs of production are forecast to decrease by circa 8% while overhead costs of production are forecast to remain relatively unchanged, relative to 2023.

Concentrate feed prices are forecast to decrease modestly in 2024, by circa 1%. The volume of feed use is forecast to remain comparable with 2023 levels, a year in which volume used also decreased by circa 5%. Concentrate feed is required to meet the earlier additional Easter demand expected in 2024, a year in which Easter is celebrated slightly earlier in the month of March, rather than in April as in 2023 year. Overall expenditure on concentrates in 2024 is forecast to decrease by 1%.

The price of fertiliser is forecast to decline further in 2024, following price declines in 2023 year, reversing some of the substantial increases experienced in earlier year. Electricity and fuel prices are also forecast to decline while other overhead costs remain relatively stable or increase moderately by circa 2%. Overall, pasture and forage costs on Irish lowland mid-season lamb enterprises are forecast to decline in 2024, by almost one third.

Table 1 summarises our forecasts of output, costs and margins for the midseason lamb enterprise for 2024. Our modestly positive outlook for lamb prices in 2024, coupled with a forecast decline in sheep output per hectare, with a forecast decline in direct costs of production leads to our forecast of a higher gross margin in 2024 than in 2023. Factoring in the additional payments forthcoming under the proposed ‘improved’ SIS scheme for 2024 year further increases the gross margin forecast for 2024.

Table 1: Average mid-season lamb enterprise costs, output, gross and net margin, 2022 – 2024f

Gross and net margins

Our forecast for the 2024 gross margin per hectare for the mid-season lamb system is €982/ha, a 9% increase on our 2023 estimate. In 2024, as in 2023, margins earned on the mid-season lowland lamb enterprise will continue to be boosted by the receipt of payments from CAP Pillar II schemes (particularly the new Sheep Improvement Scheme).

Total overhead costs for the average mid-season lamb enterprise are forecast to remain relatively stable in 2024. In 2024 the forecast decline in overhead costs levels further augments the forecast decrease in direct costs. With a small increase in output value forecast for 2024, mainly as a result of additional Sheep Improvement Scheme payments, net margin per hectare for the average sheep enterprise is expected to increase in 2024 to €263/hectare – 42% increase on the 2023 net margin of €186/ha.

This article was adapted from the Review of Sheep Farming in 2023 and Outlook for 2024 paper published in the Outlook 2024 – Economic Prospects for Agriculture. Access the full publication, which includes a review of sheep farming in 2023 and 2022, here.

Also read: 2023 a challenging year, but outlook for 2024 more positive