SITUATION AND OUTLOOK FOR TILLAGE 20082009

Document Sample
SITUATION AND OUTLOOK FOR TILLAGE 20082009 Powered By Docstoc
					SITUATION AND
OUTLOOK FOR
TILLAGE 2008/2009

F. Thorne
Rural Economy Research Centre



  Rural Economy Research Centre
  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



                   Rural Economy Research Centre
                   Situation and Outlook Conference
                                 Change in Area (since 2007) in
                                                    Estimated increase
                                                                                     area = + 15 %
                         350                                                                             160%


                         300                                                                             140%

                                                                                                         120%
        Area ('000 ha)




                         250




                                                                                                                % Change
                                                                                                         100%
                         200
                                                                                                         80%
                         150
                                                                                                         60%
                         100
                                                                                                         40%

                         50                                                                              20%

                          0                                                                              0%

                               W. Wheat S. Wheat W. Barley S. Barley W. Oats         S. Oats    Total
                                                                                               cereals

                                          2007       2008           2008 area relative to 2007
Source: CSO and Teagasc Harvest Report 2008

                                                  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%)


                              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

                          Rural Economy Research Centre
                          Situation and Outlook Conference
                                            Estimated Cereal Production
                                            2007 - 2008    22% increase on 2007 production levels
                                                           (17% increase adjusted for moisture)
                                     3000                                                                160
                                                                                                         140
          Production ('000 tonnes)




                                     2500
                                                                                                         120
                                     2000
                                                                                                         100




                                                                                                               Per cent
                                     1500                                                                80

                                                                                                         60
                                     1000
                                                                                                         40
                                      500
                                                                                                         20

                                        0                                                                0
                                               Wheat          Barley              Oats           Total
                                                       2007              2008              % Change

Source: CSO and Teagasc Harvest Report 2008

                                                        Rural Economy Research Centre
         Source: Author’s estimates                     Situation and Outlook Conference
                  World Coarse Grain Balance
                  Sheet              Stocks increased for
                                                                              wheat and barley but tight
                       160                                                    situation forecast for
                       140                                                    maize
                       120
                       100
  Carry out
 stocks (mt)             80
                         60
                         40
                         20
                           0
                                      World wheat             World barley           World maize

                                                      2007/08            2008/09
Source: IGC, USDA, Strategie Grains

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




     Rural Economy Research Centre
     Situation and Outlook Conference
                Cereal prices
                (€/tonne at 20% moisture)


                                  2008                 2007        % change

           Feed Wheat                 130                    200      -35%

           Feed Barley                  129                  183      -30%

           Malting Barley               180                  205      -12%

           Feed Oats                    123                  185      -35%

Source: Authors Own Estimates

                                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


                      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


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




 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



                          Rural Economy Research Centre
                          Situation and Outlook Conference
                               Gross Margin - major cereals
                               (2007 - 2008)
                        1400
                                                    1228
                        1200
Gross Margin € per ha




                                 1029                                                            1005
                        1000

                         800
                                                                            634
                         600                               548

                                                                                                        364
                         400            278
                         200                                                       111

                           0
                                 Spring Wheat      Winter Wheat          Spring Feeding          Winter Barley
                                                                              Barley

                                                           2007                           2008


                                                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
                      Rural Economy Research Centre
                      Situation and Outlook Conference
                               Gross Margin - major cereals
                               (2007 - 2009)
                        1400
                                                  1228
                        1200
Gross Margin € per ha




                               1029                                                               1005
                        1000

                         800
                                                                            634
                         600                             548 583
                                            480                                                                450
                                                                                                         364
                         400          278
                                                                                           193
                         200                                                         111

                           0
                               Spring Wheat        Winter Wheat            Spring Feeding          Winter Barley
                                                                                Barley

                                                      2007                  2008                 2009

                                                  Rural Economy Research Centre
                                                  Situation and Outlook Conference
                          Cereal Enterprise Gross
                           Margin (2007 - 2009)
                   1400
Euro per Hectare




                   900

                                                                               678
                   400                                                   589

                                                       355
                                 40              272                                   295 369
                            -9


                   -100
                           Low            Moderate                 High              Average
                          margin           margin                 margin

                                  2007                       2008                    2009


                                      Rural Economy Research Centre
                                      Situation and Outlook Conference
                           Cereal Enterprise Net
                           Margin (2007 - 2009)
                    800
Euro per Hectare




                    600
                    400
                    200
                      0
                                                                           -154 -167
                                                                                         -330 -293
                   -200     -445 -445
                                                    -409 -279


                   -400
                   -600
                           Low              Moderate                   High            Average
                          margin             margin                   margin

                                   2007                          2008                  2009

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




 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


                  Rural Economy Research Centre
                  Situation and Outlook Conference
                   Returns to production for owned
                   land and a – stack
      Returns to Production no2009 scenario is
                   positive for rent ignored)
      (No stack option / land 2009 for the AVERAGE
                   producer
        500
        400
        300
Euro per
         200                                        443
hectare
         100                         225                     209

          0
                -61
        -100
                Low            Moderate             High    Average
               margin           margin             margin




                Rural Economy Research Centre
                Situation and Outlook Conference
                         Production on rented land (value
                          to per hectare) – 2009
                  Returns€250Productiononly viable for
                         the top one land farmers
                  (Stacking option /third of rent scenario)
                   300
                   200
                   100                                                        193

Euro per   0
                                                           -25                          -41
hectare -100
                                       -311
                  -200
                  -300
                  -400
                                   Low              Moderate                  High    Average
                                  margin             margin                  margin

Assumed Land Rent - €250 per hectare


                                          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


                        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



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


          VERSUS




    Rural Economy Research Centre
    Situation and Outlook Conference

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:9
posted:4/10/2009
language:English
pages:25