2011 was a very good year for the agri sector, underpinned by farm gate prices in most sectors which were at, or close to, historic highs. Farm incomes increased by 33% to reach record levels in current terms.
With the exception of 2005, when there was a large double payment of some subsidies on the introduction of the Single Farm Payment system, in real terms, farm incomes were at the highest level in the past 15 years.
The milk price of about 34c/l was up about 10% on 2010 and at its highest price ever in current terms, but, in real terms it remained close to 20% below the price level when quotas were introduced.
Irish milk deliveries in the first ten months of this quota year were about level with the national quota. This is a result of the sharp reduction of milk supply in the final quarter of 2011 in the face of a looming major quota over-run.
A continued tight production discipline will still be required through to the end of March if the country is to avoid a super levy bill. The phasing out of milk quotas in 2015 presents Ireland with the first real opportunity to expand production in almost 30 years, however, the potential for a superlevy fine will remain each year until then.
Currently, the outlook for milk price is stable for the first half of 2012, with some weakening expected in the second half of the year.
Similar to the dairy sector, 2011 was also a very good year for the beef and sheep sectors with prices increasing throughout the year to reach historic highs. Cattle prices increased by almost 20% and the lamb price finished the year on average 9% higher than in 2010.
The high prices for both the cattle and sheep sectors carried over into the New Year; however there has been some weakening in beef price over the past few weeks.
Grain growers also enjoyed a good year in 2011 with prices at harvest 6% above the harvest of the previous year. Output from the sector was up also, due mainly to the very high yields per hectare achieved.
The increased grain prices did however place significant margin pressure on the pig sector. While output prices in the sector were up on 2010, this uplift was not sufficient to offset the rise in feed prices.
Following a difficult 18 month period, the industry has returned to marginal profitability but a sustained period of lower feed costs and strong pig prices will be required to recoup the losses accumulated by the sector.
Looking forward to 2012, we are expecting farm incomes to remain strong again this year and build on the performance of the sector over the past two years. AIB is forecasting that the years ahead on average should see a continuation of good trading conditions and strong returns.
The positive sentiment in the agri sector has increased farmer activity in the land market over the past year. This coupled with the re-opening of the Targeted Agricultural Modernisation Schemes by the Department of Agriculture, Food and the Marine, is likely to lead to an increase in on farm investment over the short-to-medium term. When planning on-farm investment, we are advising farmers to take a multi-annual view on their farms and examine the performance over the previous 3 - 5 years, accounting for variances in profitability in very strong or very poor years.
AIB has had a long association with the agriculture sector. We remain strongly committed to continuing the partnership we have with our farming clients through supporting them in the management and development of their farms.
The latest edition of ‘Agri Matters’, AIB’s publication for our farming customers is now available in your local AIB branch and may be of interest.