No hiding from price collapse
Milk prices are in freefall, with no indication that a bottom has been reached. Producer confidence has taken a battering and the coming months will be difficult as bills are due and even lower dairy prices are a real prospect. Two months ago, there was some hope that base milk price could be held at 40c/L. Now, there is a very real prospect that the 30c/L barrier may be breached. Pessimism can be a contagious disease, and no one wants to talk down an already depressed market, but milk producers do need to prepare as best they can for what is ahead. High tax bills based on high milk prices from 2022 are in prospect. While efficient financial management has the potential to curb the final bills somewhat, there will be no avoiding the impact on dairy businesses. Glib commentary around financial cushioning from last year’s high returns is unrealistic. Farmers, in the main, reinvest in their businesses when they have a profitable year. That’s what keeps businesses viable. Squirreling money away for potential rainy days is not the natural focus. Elsewhere, as we outline in this issue of Irish Farmers Monthly, grain farmers are also under pressure. The retreat from last year’s grain prices has been almost unimaginable. Despite many of the reasons for last year’s higher grain prices still being in place, including the disruptive impact of the war in Ukraine, a record-breaking corn harvest in North America has sent grain prices plummeting, with little indication of any recovery this year. As with the milk-production sector, while input prices have reduced somewhat from last year, they are still far higher than historical averages and there is little anticipation of significant reductions coming through.
Though beef prices have not quite come back to the lows of last Autumn, they are now far below what is required to deliver any profit on cattle bought for finishing last spring. Buyers would have made their calculations based on beef prices at the time. Prices have now reduced substantially and there is little optimism that they will increase substantially this autumn. These are harsh realities that cannot be ignored.
A few years ago, the idea of sheepmeat being the premium-priced meat product would have been almost unimaginable. That is now a reality and even still, sheep producers are under pressure, having seen prices retreat significantly in recent months. High production costs have caught up on output prices and margins have tightened, if not disappeared. Already, we are seeing evidence of further contraction in the sector.
It would be encouraging to suggest that the medium-term prospects for the various sectors will improve. Right now, there is no evidence that this is the case. EU and Irish government policies will continue to put pressure on food-production profitability. Internationally, Irish food exports are facing increased competition from rising production across the globe. UK trade deals, especially with Australia and New Zealand, will increase price pressures in our nearest and most important market in the coming years. Brexit has not and will not go away. At the other side of the world, the great imponderable is China. Its food buying ability is now in doubt. What little economic information is available from that country suggests lower buying power in the time ahead, rising unemployment, a long-postponed real estate collapse and an ever-increasing desire, realistic or not, to be considerably more self-reliant in food production. It is difficult to find a silver lining at this time.