1. Rural Economy Research Centre Situation and Outlook Conference Situation and Outlook for the Dairy Sector T. Donnellan and T. Hennessy

2. Rural Economy Research Centre Situation and Outlook Conference Outline  Review of 2007 (NFS data)  Estimates for 2008  Outlook for 2009

3. Rural Economy Research Centre Situation and Outlook Conference Review of 2007  2007 was a bumper year for dairy farmers  Milk prices were high and margins were up  Review Costs Margins

4. Rural Economy Research Centre Situation and Outlook Conference Distribution of Costs 2007

5. Rural Economy Research Centre Situation and Outlook Conference Distribution of Costs 2007 14 11 8

6. Rural Economy Research Centre Situation and Outlook Conference Distribution of Costs 2007

7. Rural Economy Research Centre Situation and Outlook Conference Distribution of Costs 2007 27 21 16 21

8. Rural Economy Research Centre Situation and Outlook Conference Distribution of Costs 2007 27 21 16 21 Difference between high and low cost = €33,000 on 300,000 litres

9. Rural Economy Research Centre Situation and Outlook Conference Net Margin 2006 & 2007

10. Rural Economy Research Centre Situation and Outlook Conference Net Margin 2006 & 2007 On moderate cost farms - enterprise profit up 85%

11. Rural Economy Research Centre Situation and Outlook Conference Variation in Costs  Most variable items Purchased feed & other fixed costs  Variability in feed use Soil type and stocking rate

12. Rural Economy Research Centre Situation and Outlook Conference Influence of Soil Type 2007 Soil Type Production Litres / Ha6,5008,5009,500 PoorFairGood Concentrate cent / litre543.5 Costs cent / litre2422 20 Net Margin €/Ha77511531365

13. Rural Economy Research Centre Situation and Outlook Conference Purchased Feed  Expenditure on feed by those on good soils is variable

14. Rural Economy Research Centre Situation and Outlook Conference Purchased Feed

15. Rural Economy Research Centre Situation and Outlook Conference Purchased Feed

16. Rural Economy Research Centre Situation and Outlook Conference Exposure to Debt  Variability in fixed costs Exposure to debt and cost of interest repayment  Interest payments – typically 1cpl but varies from 6 to 0 cpl  Investment levels may be driving cost variation  Investment required to be sustainable

17. Rural Economy Research Centre Situation and Outlook Conference Borrowings by Production size

18. Rural Economy Research Centre Situation and Outlook Conference Interest Payments

19. Rural Economy Research Centre Situation and Outlook Conference Interest Payments Low Cost

20. Rural Economy Research Centre Situation and Outlook Conference Interest Payments Low Cost Moderate Cost High Cost

21. Rural Economy Research Centre Situation and Outlook Conference Cost Variation  Significant cost variation exists  Some factors beyond farmers’ control  Investment may be required to be sustainable  Management issues still prevail – efficiency of feed use contributes to cost variation

22. Rural Economy Research Centre Situation and Outlook Conference Estimates for 2008

23. Rural Economy Research Centre Situation and Outlook Conference Review of 2008  Milk price  Input Costs  Margins

24. Rural Economy Research Centre Situation and Outlook Conference Irish Dairy Board Butter/SMP equivalent price 2005 to 2008

25. Rural Economy Research Centre Situation and Outlook Conference Milk Prices – 2006 - 2008

26. Rural Economy Research Centre Situation and Outlook Conference Supply Profile

27. Rural Economy Research Centre Situation and Outlook Conference Supply Profile

28. Rural Economy Research Centre Situation and Outlook Conference Supply Profile Average 2007 price 31.8 cpl

29. Rural Economy Research Centre Situation and Outlook Conference Supply Profile Average 2007 price 31.8 cpl

30. Rural Economy Research Centre Situation and Outlook Conference Supply Profile Average 2007 price 31.8 cpl Average 2008 price 31.2 cpl

31. Rural Economy Research Centre Situation and Outlook Conference Milk Price  Average price for 2008 down just 2% on 2009  Forecasted an annual average of 30c per litre  Fall at co-op level came later than return on dairy product markets

32. Rural Economy Research Centre Situation and Outlook Conference Inputs in 2008  Expenditure on Feed up 22% Pasture and forage up 28% Energy and fuel up 13% Labour up 6% All others up 6%

33. Rural Economy Research Centre Situation and Outlook Conference Margins 2008  Total input expenditure in 2008 up 13% (21 to 24 CPL)  Milk prices static  Average Net margin decreases by 30%

34. Rural Economy Research Centre Situation and Outlook Conference Net Margin 2008

35. Rural Economy Research Centre Situation and Outlook Conference Net Margin 2006, 2007 & 2008

36. Rural Economy Research Centre Situation and Outlook Conference Outlook for 2009

37. Rural Economy Research Centre Situation and Outlook Conference Outlook 2009 – Milk price  Short-term outlook not good  If current Irish milk prices prevail for 2009 Annual average price down 10% in 2009  But current prices do not yet reflect market situation  If current dairy export market prices prevail through 2009 Then annual price down 15% in 2009

38. Rural Economy Research Centre Situation and Outlook Conference Outlook 2009 – Milk price  Short-term: slowdown in global consumption growth Consumption adjusting to higher prices Global recession – especially developing markets Buyers staying out of market to bring prices down  Global Supply increased following high 2007 prices Exports from NZ still growing Exports from the US contracting but still present Increases in EU quota  Annual average 2009 price down 15% (27 CPL)

39. Rural Economy Research Centre Situation and Outlook Conference Outlook 2009 – Input Expenditure  Expenditure Feed down 25% Fertiliser down 12% Fuel down 15% & Electricity unchanged Other costs up 2%  Total Expenditure down 7% (24 to 22 CPL)

40. Rural Economy Research Centre Situation and Outlook Conference Forecasted Net Margin 2009

41. Rural Economy Research Centre Situation and Outlook Conference Net Margin 2007,2008 & 2009

42. Rural Economy Research Centre Situation and Outlook Conference Net Margin 2007,2008 & 2009 On moderate cost farms enterprise profit for 2009 down 35% on 2008 down 54% on 2007

43. Rural Economy Research Centre Situation and Outlook Conference Net Margin 2006, 2007, 2008 & 2009

44. Rural Economy Research Centre Situation and Outlook Conference Gross Margin per Hectare Various Enterprises

45. Rural Economy Research Centre Situation and Outlook Conference Take Home Message  Average annual milk price remained up in 2008  But input price inflation hit margins  Although some input prices to decline in 2009  Outlook for dairy markets not positive  Price forecast to fall to approx. 27 cent per litre  Margins forecasted to be 35% lower than 2008 and over 50% lower than 2007

46. Rural Economy Research Centre Situation and Outlook Conference Thank – You Papers available from www.tnet.teagasc.ie/rerc