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Farmers to Finally See an Easing of Production Costs in 2014

Next year should see some easing in production costs on Irish farms, following several years of upward price movements and increased usage requirements. This was one of the main findings of the newly published outlook for farm incomes in 2014, produced by Teagasc economists.

With high levels of feed and fertiliser expenditure dominating discussions of production costs over the last two years, Teagasc economist Trevor Donnellan said that 2014 should mark a reversal in the upward trends in input prices which have been a major headache for livestock producers.

An improved global cereal harvest in 2013 has already led to a fall in cereal prices and this is gradually being transmitted to the prices farmers pay for feed. More importantly a return to normal weather conditions in 2014 should see a 20 percent drop in the level of feed use on dairy and beef farms, with usage levels returning to normal for the first time since 2011.

Grassland fertiliser use, which spiked in 2013 in response to the fodder crisis, should also return to more normal levels in 2014. In addition prices for fertiliser in 2014 should be 10 to 15 percent lower than the average prices in 2013. With oil prices projected to be lower in 2014, there may also be a slight reduction in farm diesel prices next year.

The Teagasc report finds that these changes in feed, fertiliser and fuel prices should bring about a dramatic drop in input expenditure in 2014, the first major decrease in production costs since the commodities price boom began back in 2007.

On the output side, greater availability of dairy products on the international market should see Irish milk prices drop in 2014 from the exceptional levels being achieved at present. This should be offset by the fall in production costs, leaving income from dairy farming little changed in 2014 in comparison with the 2013 level.

Current expectations are that Irish cereal prices for the 2014 harvest will be similar to those of 2013. However, this forecast remains highly contingent on favourable global production conditions in 2014, as global cereal stocks continue to remain low. Irish cereal yields are likely to be down in 2014 given that they were well above average in 2013. Dr. Fiona Thorne of Teagasc said that on balance, lower production costs could allow margins to improve but that outcome is contingent on yield levels and if these revert to a normal level, then cereal margins in 2014 should be relatively unchanged on the 2013 level.

Dr. Kevin Hanrahan of Teagasc said that Irish beef and sheep prices should be relatively stable in 2014 and therefore the decline in production costs should lead to an increase in margins relative to 2013. The fall in input costs should generate greater demand for young animals which should benefit margins for sucker producers in particular.