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Outlook For 2011 Irish Cattle Farms

03 March 2011

James Breen and Kevin Hanrahan from Teagasc forecast the expenditure for various input items, the beef price that will prevail in 2011 and the likely income of Irish beef farmers in 2011.

Outlook for 2011

In this section we forecast the expenditure for various input items, the beef price that will prevail in 2011 and the likely income of beef farmers in 2011.

The Outlook for Input Expenditure


The 2010 harvest prices for cereals in Ireland were up by 59 percent on the 2009 harvest prices (CSO, 2010). This strong increase in grain prices is likely to lead to a strong increase in the cost of concentrate feed in 2011. The price of feed is also dependent on a number of other factors including the price of imported non-grain ingredients, as well as labour, processing and transport costs. The price of imported feed ingredients is projected to increase in 2011 compared with 2010, while the cost of energy is also likely to increase. On the basis of increasing grain prices and increased oilseed and maize prices we forecast that the price of feed in 2011 will be at least 20 percent higher than in 2010. Our analysis assumes that in response to the strong forecast price increase in feed prices that the volume of feed fed per hectare in 2011 will decline by 10 percent compared with 2010 and that expenditure on feedstuffs will be approximately 8 percent higher in 2011.


As we move through 2011, increases in fertiliser prices are expected due to forecast increases in energy prices and the return to economic growth internationally which should push up international demand for fertiliser. Increasing commodity prices and extra demand for fertilisers when combined with increasing energy prices and a contraction in supply capacity in the international fertiliser industry all point to higher fertiliser prices in 2011. We forecast that the recent upward trend in fertiliser prices will continue into 2011 and that fertiliser prices paid by Irish cattle farmers in 2011 will be 20 percent higher than in 2010. In response to the increased price of fertilisers cattle farmers are forecast to reduce their usage of fertiliser by approximately 5 percent. Overall expenditure on fertilizers is forecast to be over 9 percent higher in 2011 than in 2010.

Energy and Fuel

Following the progressive increase in crude oil prices in 2010, and with natural gas prices also showing upward movement, an increase in energy expenditure on farms in 2011 is inevitable.

In December 2010 the average crude oil futures price for 2011 was $90 per barrel. This futures price, if fully reflected in spot prices in 2010, would represent an 18 percent increase on the 2010 level. Based on this 2011 futures price for crude oil and the further increase in the carbon tax announced in Budget 2010, we forecast that the annual average price of diesel will increase by 12 percent and that there will be a 5 percent increase in the cost of agricultural contracting. We forecast no change in the volume of diesel or contracting services consumed on Irish cattle farms.

The cost of electricity is also expected to increase on the back of the forecast higher oil and natural gas prices in 2011. Electricity prices are forecast to increase by 5 percent in 2011.

Other Direct and Fixed Costs

Increases in the cost of labour or general inflation are likely to be low given the ongoing weakness in the Irish economy. We forecast that other direct and other overhead (fixed) costs will remain unchanged relative to their 2010 level in 2011.

The Outlook for Cattle and Beef Markets 2011

The price of Irish cattle and beef improved marginally in 2010 and this improvement is forecast to continue in 2011. Continued growth in the live export trade seen in 2010, along with a still declining EU cattle herd, a continuation of the effective ban on Brazilian beef imports to the EU and increasing world prices for beef, will all have a positive impact on Irish cattle and beef prices in 2011. We estimate that Irish cattle prices in 2011 will be 4 percent higher than in 2010.

The Outlook for Beef System Net Margin in 2011

Figure 16 compares the estimated and forecast average direct costs per hectare in 2010 and 2011 for the four featured beef production systems. Given the estimated volume changes in input usage as well as the changes in input prices, it is expected that total direct input cost expenditure will be higher in 2011 than in 2010. The largest increase is expected to occur on the RD farms, where total direct costs are expected to increase by €53 per hectare. This larger increase in expenditure on feed reflects both the higher stocking rate on these farms and the importance of concentrates in direct costs of production. The increase in direct costs is expected to be lowest on SS farms, at approximately €23. Increases in direct costs of €24 and €28 per hectare are expected on WF and SF farms respectively.

Source: Authors’ Own Estimates 2010 and Forecasts 2011

The average gross margin for each of the four cattle systems is forecast to decrease in 2011. Lower margins result from increases in input prices, principally those for feed and fertilisers that outstrip the forecast improvement in the price of cattle. The forecast reduction in the average gross margin across the four cattle systems ranges from €1 to €10 per hectare. The decline in gross margin is largest on RD farms. These typically have higher direct costs per hectare given their greater intensity of production and so are likely to lose more on a per hectare basis from the forecast increase in the cost of concentrate feed and fertiliser.

Table 4: Forecast Gross and Net Margins in 2011 for the main Beef Systems

  Single Suckling Dairy Beef Weanling to Finish Store to Finish
euro per hectare
Gross Output 2010 515 1138 574 575
Gross Output 2011 533 1176 596 597
Gross Margin 2010 144 313 142 199
Gross Margin 2011 140 303 136 198
Net Margin 2010 -157 -156 -198 -105
Net Margin 2011 -168 -175 -211 -112
Source: Authors’ Own Estimates 2010 and Forecasts 2011

Despite the modest increase in cattle prices forecast for 2011, when combined with increased inputs prices, particularly for concentrate feed and fertiliser, a decline in cattle net margins in 2011 compared with 2010 is forecasted. As shown in Table 5 the net margin on the most profitable farms is forecasted to decrease from an estimated €78 per hectare in 2010 to €74 per hectare in 2011.

Table 5: Forecast Financial Performance per hectare for All Cattle Farms 2011 and Estimated for 2010

  Least Profitable Average Profitability Most Profitable All
Gross Output 2011 660 529 725 614
Direct Costs 2011 650 397 384 443
Gross Margin 2011 10 132 341 171
Overhead Costs 2011 468 295 267 332
Net Margin 2011 -458 -162 74 -161
Net Margin 2010 -434 -151 78 -172
Source: Authors’ Own Estimates 2010 and Forecasts 2011

Concluding Comments

Despite relatively buoyant world beef markets, the continued effective exclusion of Brazilian beef from the EU market and a decline in indigenous EU production, Irish beef prices only increased marginally in 2010 over the price levels observed in 2009. The weak improvement in Irish prices largely matches the pattern across EU markets and reflects the nascent but hesitant nature of the current economic recovery; consumer demand remains depressed and demand for beef in 2010 had not begun to recover sufficiently to generate significant improvements in prices during 2010. The decline in the value of the euro relative to sterling allowed for some improvement in Irish prices whereas prices in most other euro area markets declined in 2010 relative to 2009.

Costs of production in general declined in 2010 relative to 2009. Fertiliser and feed prices declined in 2010 relative to 2009 and these lower prices, though partially offset by greater volumes of input use, are estimated to have reduced total costs of production. The decline in the costs of production allowed for improvements in gross and net margins for Irish cattle farming. However, despite the improvement in margins due to slightly higher output prices and lower input costs the majority of Irish cattle farms still earned a negative net margin from cattle production.

In 2010 over four-fifths of Irish cattle farmers are estimated to have earned a negative net margin. Despite the forecast higher output prices for 2011, forecasts of increased costs of production are expected to lead to deterioration in the profitability of Irish cattle farming in 2011 relative to 2010. Those cattle farms which currently earn positive net margins can expect to see those margins increase in 2011, however on other cattle farms that are estimated to have earned a negative net margin in 2010 margins are forecast to further deteriorate in 2011.

March 2011


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