Farmers should plan to the year end says AIB Agri-advisor

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AIB Agri Advisor, Barry Hyland

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AIB Agri Advisor, Barry Hyland

Farmers should plan to the year end says AIB Agri-advisor

AIB Agri Advisor, Barry Hyland

The evenings are drawing in fast, temperatures beginning to drop, and a touch of ground frost is a more common morning feature in many parts, meaning the winter is very much on its way.

The less favourable weather conditions experienced, particularly along the southern and western coast, combined with declined output prices across almost all farm sectors, has amplified stress levels and caused cash flow pressure on many farms. Our research suggests that almost two in every five farmers are currently experiencing cash flow pressure and one in three expect cash flow pressure to year end.

For farms experiencing / anticipating financial pressures to year end, the important thing to remember is that there is a number of potential options available through this period of short-term difficulty. Now is the time to act to put the plans in place for the weeks and months ahead. Early contact with a local agricultural advisor or bank manager is key so identify the most appropriate solution to meet individual circumstances. 

The market environment has been challenging and disparate through 2016, and unfortunately shows little signs of significant improvement in the months ahead. Output prices in many farm sectors have continued their downward trend, with declining input prices insufficient to compensate. A reduced income is likely on many farms in 2016 where efficiency gains or increased output is not evident. 

Looking at the individual sectors, milk prices have trended upwards in recent weeks, reflecting the downward supply trend across many of the key exporting nations and increased import demand. However, given that milk supplies on farm are declining, the uplift will offer little by way of increased incomes or improved farm cash flow for many in 2016. Its true benefit may be more apparent entering into 2017. Aggregate milk price in 2016 is likely to average 25-26c/litre for the year as a whole, which is around the cost of production for many.

In line with typical seasonal supply trends and reducing grass supplies, beef prices have slipped in recent weeks. Quality weanlings continue to fetch strong prices, offering some potential for suckler farms, although plainer stock are returning lower prices relative to 2015. At €3.65/kg (end-October) R3 steer prices are some 5.5% below 2015 levels. The question among many is how low will prices go before it starts to plateaux out, particularly amid Brexit concerns. The boat destined for Turkey is however certainly welcome and may help ease, at least in part, some concerns regarding increased supplies to year end.  

Similar to beef, sheep prices have also slipped in recent weeks reflecting tighter grass supplies. Prices are currently (end-October) at around €4.40, comparable to 2015 levels. Given reduced input expenditure, incomes on sheep farms are likely to be at least comparable to 2015 levels.

Tillage farms have experienced reduced market returns and relatively low incomes for the past three consecutive years. Harvesting was difficult in many parts through 2016, particularly along the Western seaboard, with yields nationally returning to more normal levels. When combined with reduced output prices (approximately 10% below 2015 levels), unfortunately many tillage farms will experience further income pressure in 2016, particularly where farms are heavily reliant on leased land.

Finally, although experiencing a blip in recent weeks, pig prices have been on an upward trajectory since mid-April. With increased Chinese demand and a tighter balance between EU supply and demand through the second half of 2016 as the declined breeding herd – down 1.7% on 2015 levels – takes effect, further increases in pig prices likely.

Overall, the outlook to year end is somewhat challenging with income volatility again to the fore. The impact at individual farm level will as always be heavily influenced by underlying levels of competitiveness and on-farm efficiency. 

AIB maintains a positive medium-long term outlook for the sector but recognise the short-term difficulties that are currently being experienced and are here to help, should cashflow support be required. We take a long term view of short-term challenges and recognise there is no one universal solution suitable to all, instead there are a number of support measures that can be tailored to individual circumstances.

I would encourage farmers experiencing or anticipating cashflow difficulties to take the time to inform themselves and understand their own individual situation, identify the cause or causes of the problem and estimate the level of support required. The important thing is to remember is that there are a number of support options available to you.

If you would like to speak to somebody in AIB on how we can help you and your business, visit your local AIB branch, call 1890 47 88 33 (available 8am - 9pm on weekdays and 9am - 6pm on Saturdays) or visit www.aib.ie/farming.