1. Rural Economy Research Centre Situation and Outlook Conference SITUATION AND OUTLOOK FOR TILLAGE 2008/2009 F. Thorne Rural Economy Research Centre

2. Situation and Outlook Conference Outline of Presentation  Global and National Market Review  Gross and net margins 2007, 2008 & 2009 Crop specific & cereal enterprise margins Returns to production  Conclusions

3. Rural Economy Research Centre Situation and Outlook Conference Change in Area (since 2007) Estimated increase in area = + 15 % Source: CSO and Teagasc Harvest Report 2008

4. Rural Economy Research Centre Situation and Outlook Conference Crop Yields in 2008  Green yield increases recorded for major crops despite difficult harvest conditions Spring barley (+ 1.5%) Winter wheat (+13%) Winter Barley (+9%)  Exception for late harvested spring crops Spring wheat (-13%) Spring oats (-5%)

5. Rural Economy Research Centre Situation and Outlook Conference Crop Moistures in 2008  In general the earlier harvested crops had similar moistures to last year Winter wheat moisture 22  But later harvested spring crops had significantly higher moisture levels than ’07 Spring wheat and barley + 5 moisture points  Remember quoted yields are recorded at green moistures

6. Rural Economy Research Centre Situation and Outlook Conference Estimated Cereal Production 2007 - 2008 Source: Author’s estimates 22% increase on 2007 production levels (17% increase adjusted for moisture) 22% increase on 2007 production levels (17% increase adjusted for moisture) Source: CSO and Teagasc Harvest Report 2008

7. Rural Economy Research Centre Situation and Outlook Conference World Coarse Grain Balance Sheet Stocks increased for wheat and barley but tight situation forecast for maize Source: IGC, USDA, Strategie Grains

8. Rural Economy Research Centre Situation and Outlook Conference But Markets are a balancing act

9. Rural Economy Research Centre Situation and Outlook Conference Cereal prices (€/tonne at 20% moisture) Source: Authors Own Estimates

10. Rural Economy Research Centre Situation and Outlook Conference Why did cereal prices decrease?  Increased production area for international feed grains market driven by ’07 prices  Weather conditions during sowing and growing season  Speculation in agri commodities driven by fall in financial equity markets and subsequent ‘washing out’ of contracts  Relatively low ending stocks leaves the market open to price instability

11. Rural Economy Research Centre Situation and Outlook Conference Summary Remarks for the Market Review & Outlook  In a global market, price volatility is inevitable  Global market stocks remain low  Volatility rather than price predictions are a certainty

12. Rural Economy Research Centre Situation and Outlook Conference Trends in gross and net margins

13. Rural Economy Research Centre Situation and Outlook Conference 2007 - 2008 Gross & Net Margin  2007 - Actual NFS data  2008 Gross margin = (Yield X Price) less Direct Costs  2008 Net margin = Gross Margin – Allocated overheads Input expenditure  Seed – approx. 35 % increase  Fertilizer - approx 50% increase  Energy – approx. 22 % increase  Crop protection – approx. 1 % increase  All ag. inputs – approx. 6 % increase  Land Rent – approx. 30% increase

14. Rural Economy Research Centre Situation and Outlook Conference Gross Margin - major cereals ( 2007 - 2008)

15. Rural Economy Research Centre Situation and Outlook Conference Gross Margin - minor cereals ( 2007 - 2008)

16. Rural Economy Research Centre Situation and Outlook Conference Forecasting Gross & Net Margin ‘09  Yield estimates (three year average)  Output Price estimates 4% increase on 2008 levels but a 90% confidence interval on the forecast  Direct input prices 3% decrease in direct cost expenditure on ‘08 levels Overhead costs 5% decrease in overhead expenditure on ’08 levels

17. Rural Economy Research Centre Situation and Outlook Conference Forecasting Margins  Margin volatility Yield, input and output prices, direct payments  Price as a risky variable 67% of the variation of average gross margin in the past 10 years €135 green wheat forecast 2009

18. Rural Economy Research Centre Situation and Outlook Conference 2009 Feed Wheat Price Forecast Highest probability that price in 2009 > 2008 price, but range of possible outcomes

19. Rural Economy Research Centre Situation and Outlook Conference 2009 Feed Wheat Price Forecast Highest probability that price in 2009 > 2008 price, deterministic projection - €135 per t.

20. Rural Economy Research Centre Situation and Outlook Conference Gross Margin - major cereals ( 2007 - 2009)

21. Rural Economy Research Centre Situation and Outlook Conference Gross Margin - minor cereals ( 2007 - 2009)

22. Rural Economy Research Centre Situation and Outlook Conference Cereal Enterprise Gross Margin (2007 - 2009)

23. Rural Economy Research Centre Situation and Outlook Conference Cereal Enterprise Net Margin (2007 - 2009)

24. Rural Economy Research Centre Situation and Outlook Conference So should I sow……..

25. Rural Economy Research Centre Situation and Outlook Conference Returns to Production 2009  Gross Margin  Disposable Fixed Cost items Labour Machinery Operating expenses Land Rent  Stack and no stack option  Returns to Production Positive Negative

26. Rural Economy Research Centre Situation and Outlook Conference Returns to Production – 2009 (No stack option / land rent ignored) Returns to production for owned land and a no stack scenario is positive for 2009 for the AVERAGE producer

27. Rural Economy Research Centre Situation and Outlook Conference Returns to Production – 2009 (Stacking option / land rent scenario) Assumed Land Rent - €250 per hectare Production on rented land (value €250 per hectare) only viable for the top one third of farmers

28. Rural Economy Research Centre Situation and Outlook Conference Conclusions  2007 High yields and high prices Positive gross and net margin  2008 estimates Increase in total cereals area, yields & production levels Consequent reduction in cereal prices Significant increase in direct and indirect costs Positive gross margin but negative net margin

29. Rural Economy Research Centre Situation and Outlook Conference Conclusions (continued)  Forecast 2009 Prices – probability that price will increase Costs decrease slightly Positive gross margin but negative net margin remains  Returns to production 2009 On owned land less efficient producers not viable On rented land only most efficient producers viable

30. Rural Economy Research Centre Situation and Outlook Conference ‘ that he may live in interesting times’ !!!!!!! (Chinese curse) VERSUS