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Agricultural Commodities & Inputs - Overview

World prices for many agricultural commodities rose in 2010, but key input costs such as feed, fertiliser and energy are also moving upwards. It was a very good year for Irish producers following a very difficult year in 2009. It was particularly good for exporters given the performance of international and domestic agricultural commodity markets. The market volatility experienced since the historic high prices of 2007 has continued, with cereal prices surging again towards the end of 2010. Commodity prices increased for all of the major commodities during 2010, with cereals and dairy doing particularly well. The value of output from all of the main farm enterprise increased in 2010 (relative to a difficult 2009). Margins in 2010 increased in most sub-sectors of Irish agriculture, although pigmeat sector margins declined.

Despite the ongoing economic challenges and exchange rate uncertainties output Estimates for 2010 provide evidence that the Irish agricultural sector is recovering from the negative effects of the global recession. For cereals, lower costs of production, a substantial increase in harvest prices and favourable weather conditions at harvest gave rise to a very substantial increase in cereal crop margins in 2010 relative to 2009. The outlook for 2011 is quite uncertain given the extent of the output price volatility in the market. Global cereal prices will also affect the cost of input prices for Irish livestock farmers. The Irish dairy sector had the double benefit of an increase in milk prices of about 30 percent and an increase in the volume of milk output of over 7 percent. The increase in the value of milk output was achieved with little change in aggregate costs. The outlook for 2011 is good, with Teagasc forecasting an average increase of 5% in the price of milk. Margins will however depend on good grass growing conditions. Margins in the beef sector did not improve significantly relative to 2009, but this may be because the decline in 2009 was not as severe in beef as it was in other sub-sectors. While prices should continue to rise, input costs are also expected to rise, which could mean a further fall in margins. The sheep sector experienced a good year with margins up considerably.  Irish lamb prices increased by 17 percent in 2010 relative to 2009. This far surpassed the increase in beef and pigmeat prices. Contraction in EU production and a favourable exchange rate meant that 2010 gross and net margins were up considerably on 2009.Lower exports from New Zealand and the fall in EU lamb production present a positive outlook for Irish lamb prices in 2011 although rising production costs will affect margins. The pigmeat sector had a difficult year. Irish pig prices have been slow to react to the upward movement in feed costs in 2010. Higher pig production costs seem inevitable in 2011 but pig prices should show an upward trend as 2011 evolves.  An increase in pig prices of 10 to 15 cent per pig by mid 2011 is in prospect which would facilitate the beginnings of a recovery in margins for pig producers, according to Teagasc.

In summary, it seems that 2010 was a good year for much of Irish  agriculture with operating surplus estimated to have increased by approximately 31.5% to €2,071 million in 2010. However, this follows a large decrease in 2009, showing the volatility of farm incomes in recent years. A key issue for 2011 is the continuing increase in costs, notably for feed, fertiliser and fuel. The outlook for the main sectors in 2011 suggests that output prices will increase, but the improvement will not be consistent across sectors.

Table 3.1 sets out the latest details for Output, Input and Income in Agriculture for 2010. The overriding factor that contributed to increased operating surplus was a 13.1% increase in the aggregate value of goods output from the sector. The largest increase in value came in Cereals (88%) and the dairy sector (38.8%). The table also show that input costs increased and this trend is likely to continue in 2011.

Table3.1 

Stock Changes

Early estimates for stock changes on Irish farms in 2010 are illustrated in Table 3.2. There were declines in the number of livestock held on farms, most notably in the cattle sector.

Table3.2 

Longer term trends in stock levels for cattle, sheep and pigs are outlined in Figure 3.1, which gives an index for stock numbers between 2000 and 2010 based on CSO June Livestock Surveys (Base 2000=100).

Figure3.1 

Terms of Trade

Agricultural input prices decreased by 1.76% in 2010 relative to an increase of 11.65% in output prices. These price developments equated to a positive movement in the terms of trade index for farmers of 13.65% in 2010.  

The increase in the output price index was mainly attributable to increases in cereals (58.8%), milk (28.3%) and sheep (17.0%). Elsewhere fertilisers, seeds and feedingstuffs fell by 12.3%, 7.2% and 3.6% respectively.

Table3.3