A resumption in global milk production will dampen demand growth and drive down milk prices by 15% in 2023, Teasgasc has forecast.
In its latest Economic Outlook for Irish Agriculture report, published today (Tuesday, December 13), Teagasc highlighted the prospects for the dairy sector in 2023.
Teagasc outlined in the report that 2022 had been a challenging year for dairy farming with higher-than-before input costs experienced by farmers.
It also highlighted the impact of the sharp cost inflation in the general economy which has stemmed from the war in Ukraine.
Dairy sector
However, specific to the dairy sector, Teagasc said these factors were balanced out by unprecedented milk prices that dairy farmers had received.
The latest Teagasc outlook report reviewed milk prices for 2022, and outlined that the average milk price for 2022 increased by approximately 44% on 2021 levels.
Although the average dairy farm experienced no growth in milk production, total production costs on a per-litre basis was estimated to have increased by about 30% in 2022 relative to 2021.
Milk production margins
According to Teagasc, Irish milk production in 2022 was in line with the 2021 level, with dry conditions over the summer of 2022 “limiting grass availability”.
Teagasc has estimated that the net margin for milk production in 2022 was €2,950/ha.
It outlined that the average net margin in 2022 also rose by more than €1,200/ha relative to 2021.
However, on average, milk production costs were about 8c/L (30%) higher in 2022.
Teagasc outlook for 2023
Teagasc anticipates that in 2023 the annual average milk price will fall by 15% relative to the 2022 level. This is based on the assumption that normal weather condition will prevail in 2023.
Production costs are expected to remain high in dairy farms but the average milk price in 2023 “should still be sufficient to cover the production cost increases experienced over the last 18 months”.
Teagasc has forecast that dairy farms in 2023 will operate a favourable (although declining) milk price which should see margins return to more normal levels in 2023.
It has also forecast that total production costs will remain elevated, approximately increasing by 2% higher to reach 35.7c/L.
The average net margin/ha and per litre in 2023 are likely to be down 35% and 40% respectively on the 2022 level, at €1,928/ha and 14.4c/L.
Due to a number of factors Irish milk production did not increase substantially in 2022 as higher cow numbers were offset by lower yields.
The outlook suggests that although the milk price outlook for 2023 remains relatively favourable, cost pressures will continue to be substantial.
Teagasc is predicting a 4% increase in milk production for 2023, with a further increase in cow numbers and a return to growth in milk yields.
