Stephen Cadogan: Cheap grain prices could backfire on Irish beef and dairy farmers
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It's an ill wind that blows nobody any good, and the largest ever year-to-year hit on grain grower income in the USA will help to keep a lid on animal feed prices in Ireland this winter.
However, at the same time, the ups and downs of global grain markets could leave Irish consumers paying more for bread.
According to Teagasc's recent Situation and Outlook for Irish Agriculture report, animal feed prices in 2024 continued to fall, to at least 15% lower than 2023. Irish feed prices are now at their lowest level in more than two years, but are still 25% above their 2020 level.
We import about two thirds of our cereal requirements for both animal feed and human food, and the USA has traditionally been a major supplier to the Irish animal feed industry.
Now, even lower feed prices here may come at the expense of US grain growers, some of whom say they recently sold for below their cost of production.
Some American farmers had to do this, according to a Reuters news agency report, in order to make room in their storage bins for the upcoming autumn harvests.
These growers held onto their grain since the 2023 harvest, but the improved prices they waited for never arrived. They are forced to sell now at rock-bottom prices, because favourable weather for crops has pushed down grain price prospects.
According to Teagasc, the forecast increase in world production of wheat, barley and maize is weighing heavily on international cereal markets, resulting in depressed prices.
The winners could include Irish livestock farmers, whose animal feed requirements necessitate annual imports of more than three million tonnes of feed ingredients from outside the EU.
The losers could include Irish growers. Teagasc has forecast a 5% to 10% decrease in 2024 harvest prices for Irish-grown grain, pulled down by falling world prices.
Cheap grain in the USA could backfire on Irish beef and dairy farmers if it helps American farmers accelerate beef and dairy production which floods onto the world market. But there is little sign of that happening in dairy, with US milk volumes tightening instead, due to a scarcity of heifers, hot weather, and bird flu infecting dairy cows.
However, stronger constituent levels have been making up for lower volumes.
Declining US beef production is also on the cards, due to low cattle stocks.
Despite bumper global harvests, there is a possibility of higher bread prices, which goes to show how markets work differently on both sides of the Atlantic, and the separation of animal feed and consumer food markets.
Ireland’s main source of flour for bread is the UK, and its wheat crop is estimated to be the second smallest since 1981. And this reduced crop was affected in the spring by the very wet growing conditions. The UK wheat yield has been forecast at 10.85m tonnes, compared to a five-year average of 13.86m tonnes.
That is why the UK's Agriculture and Horticulture Development Board has raised concerns over prices of products where wheat is a key ingredient, such as bread. The AHDB says the price of wheat accounts for 11%-18% of the price of bread.
However, the role of imported milling wheat has been increasing in the UK's flour industry, and lower global prices for this commodity (if the global harvest goes well) would dilute the price effect of a reduced UK wheat yield.
Meanwhile, the bumper global harvests and the downturn in crop commodity markets are shrinking profits and lowering future outlooks for some of the world’s top commodity traders and equipment manufacturers, including Bunge Global SA, CNH Industrial, Archer-Daniels-Midland Co, and equipment manufacturers John Deere and AGCO Corp.
Bunge Global SA, one of the world’s largest agricultural commodities traders, has posted its lowest second-quarter earnings since 2020.
Profits for other commodity giants such as Cargill Inc and Archer-Daniels-Midland have been under pressure from ample grain supplies, reversing the windfalls from previous years, when crop losses and Russia’s invasion of Ukraine sent grain prices surging.
Meanwhile, reduced profits are forecast for CNH Industrial, the maker of Case IH, New Holland Agriculture, and Steyr machines, also attributed to the sharp drop in crop prices coupled with rising production costs, which have lowered farm incomes around the world, forcing farmers to rethink equipment purchases.
There's a a 52-week low in the share price of AGCO, the maker of Fendt, Massey Ferguson, Challenger, and Valtra farm machinery.
Nowhere is the severe downturn in the agricultural sector felt more keenly than in Iowa, the state which ranks first in the USA for production of beef, pork, maize, soybean, and grain.
Farm-equipment giant Deere & Co has announced plans to let go more than 1,800 employees, many of them in Iowa.
Deere is pulling back production because low crop prices (and high interest rates) are slowing demand, and sales of large agricultural equipment are predicted to fall 20% to 25%.
With under-pressure American grain growers also buying less fungicide, insecticide, and fertiliser, companies like Corteva, a major agricultural chemical and seed company, are also coming under pressure.
