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SITUATION AND OUTLOOK FOR TILLAGE 2008/2009

SITUATION AND OUTLOOK FOR TILLAGE 2008/2009. F. Thorne Rural Economy Research Centre. Outline of Presentation. Global and National Market Review Gross and net margins 2007 , 2008 & 2009 Crop specific & cereal enterprise margins Returns to production Conclusions.

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SITUATION AND OUTLOOK FOR TILLAGE 2008/2009

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

  2. 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. Change in Area (since 2007) Estimated increase in area = + 15 % Source: CSO and Teagasc Harvest Report 2008

  4. 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. 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. Estimated Cereal Production2007 - 2008 22% increase on 2007 production levels (17% increase adjusted for moisture) Source: CSO and Teagasc Harvest Report 2008 Source: Author’s estimates

  7. World Coarse Grain Balance Sheet Stocks increased for wheat and barley but tight situation forecast for maize Source: IGC, USDA, Strategie Grains

  8. But Markets are a balancing act

  9. Cereal prices(€/tonne at 20% moisture) Source: Authors Own Estimates

  10. 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. 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. Trends in gross and net margins

  13. 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. Gross Margin - major cereals(2007 - 2008)

  15. 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

  16. Gross Margin - major cereals(2007 - 2009)

  17. Cereal Enterprise Gross Margin (2007 - 2009)

  18. Cereal Enterprise Net Margin (2007 - 2009)

  19. So should I sow……..

  20. 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

  21. 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

  22. Returns to Production – 2009(Stacking option / land rent scenario) Production on rented land (value €250 per hectare) only viable for the top one third of farmers Assumed Land Rent - €250 per hectare

  23. 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

  24. 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

  25. ‘that he may live in interesting times’ !!!!!!! (Chinese curse) VERSUS

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