Beef industry must look to production contracts in future

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Beef production represents the second largest sector within Northern Ireland’s farming industry, with output valued at £467m in 2018.

However, livestock farmers have endured a six-month period, which has seen cattle prices fall significantly while all their input costs moved in the opposite direction. Significantly, many analysts now see this scenario being repeated on a regular basis into the future.

Given these circumstances Ulster Bank’s senior agricultural manager in Northern Ireland, Cormac McKervey, believes that production contracts must be looked at as a way of allowing beef finishers to make a trading margin from their businesses.

“This is not happening at the moment,” he added. “Stores were bought in at high prices last autumn. A combination of weaker beef prices and recent hikes in feed costs have eroded any profit finishers might have hoped to make this winter.

“Breaking even is the best that most farmers could have hoped to make over recent months. However, sizeable losses were the reality for most producers.”

Mr McKervey continued: “Beef finishing has always been a low margin business. But of even greater significance is the high reliance placed on the single farm payment by these same producers in order to remain viable.

“With Brexit coming down the track, there is no certainty that these direct payments will be maintained in the long term. As a bank, we are already discounting their value when it comes to making any form of lending decisions.”

Mr McKervey believes that the recent agreement involving Glanbia and Kepak in the Republic of Ireland to establish a contract dairy beef scheme could be extended to the beef sector as a whole.

“Arrangements of this kind are the only viable option when it comes to putting the beef sector onto a reliable footing.”

Turning to suckler production, Mr McKervey said that producers had benefitted from last autumn’s high calf prices.

“The sector will continue to tick over,” he said. “Many producers are now operating on a part-time basis. They are not heavy investors and are not normally seeking loans from the bank to future develop their businesses.”

But Mr McKervey did confirm that a number of suckler producers are now switching to dairy.

“For most it’s a case of selling the suckler cows and using the money generated to buy the dairy stock they need,” he added.

“Many of these producers are starting out with around 60 cows and investing in robots to do the milking. In many cases a refurbishment of the sheds on the farm will be required.

“The prospects for milk looking ahead are strong enough. And on that basis the bank is happy enough to lend the additional capital that is required.”

Farm lending in Northern Ireland is currently running at £975m with monies on account totalling £450m.