Cost of production to remain elevated for Irish dairy farmers - Teagasc
Milk prices forecast to improve in 2025
30 December 2024
10 minute read
By: An analysis completed by Trevor Donnellan and Emma Dillon, Agricultural Economics and Farm Surveys Department, Teagasc, has examined the prospects for dairy farming in Ireland in 2025, according to a news release from the research authority.
Based on a 4% forecast increase in Irish milk production in 2025, on account on an improvement in yields and a stable dairy enterprise land base, production costs are forecast to remain at elevated levels.
In 2025, the annual average milk price is forecast to improve relative to the 2024 level. On the assumption that normal weather is experienced in 2025, production costs will remain high, but should be down marginally on the 2024 level.
It is forecast that total production costs will fall by 4% to reach 35.9 cent per litre. The average net margin per hectare and per litre in 2025 are likely to be up 35% and 29% respectively on the 2024 level at €2,126 per hectare and 17 cent per litre.
Dairy farms will continue to operate in a high cost environment in 2025. However, with a favourable milk price outlook and with the assumption of normal weather facilitating a production increase, there should be a further improvement in margins.
Outlook for input expenditure 2025
This analysis of likely changes in production costs in 2025, is based on a 4% increase in milk volume on the average farm. This is in line with the forecast increase in Irish national milk production.
Feed – usage and price 2025
Irish animal feed prices are driven by a combination of Irish cereal harvest prices (for the previous year and current year) and the prices of imported feed. Irish cereal prices at harvest 2024 were only very slightly up (by about 3%) on the 2023 level. In 2024, despite a slight increase in European grain production volumes, an increase in grains internationally, coupled with increased demand, resulted in a slight decrease in ending stocks to use ratios on the intentional balance sheet, resulting in a very slight upward movement in Irish farm gate harvest prices compared to 2023.
Feed prices in 2025 will depend in part on cereal prices for harvest 2025, but probably more so on the harvest prices paid in 2024. On a monthly basis, there has been downward movement in feed prices over the course of 2024, with prices in early 2025 set to be lower than at the outset of 2024. Cereal prices at harvest 2025 are forecast to increase very slightly on 2024 harvest prices. Averaging across the full year, feed prices are forecast to be a tale of two halves, with a relatively stable story for average feed prices in 2025, compared to 2024.
It is estimated that the volume of dairy feed used in Ireland increased significantly in 2024 on a per head basis due mainly to adverse weather. With the assumption of normal weather in Ireland in 2025, feed volume requirements per head for grassland enterprises would be expected to decline. With feed use down slightly on Irish farms and with stable feed prices, this will result in a 9% forecast drop in feed expenditure on a per litre basis in 2025.
Fertiliser and contracting costs – usage and price 2025
At the time of writing, it is difficult to anticipate how fertiliser prices might evolve in 2025, as energy prices and trade policy are the subject of uncertainty. For 2025 as a whole, for the purposes of this paper, it is forecast that fertiliser prices will decline by 5% on the 2024 level.
Fertiliser usage in 2025 is forecast to remain unchanged on the 2024 level. With fuel prices expected to remain stable, agricultural contracting charges in 2025 are forecast to remain unchanged on the 2024 level. Overall, this means that pasture and forage costs per hectare are forecast to decline by 3% in 2025.
Electricity and fuel – usage and price 2025
As of November 2024, prospects for the US$/euro exchange rate in 2025 are somewhat uncertain following the outcome of the US election. Concern about the potential imposition of trade tariffs has caused forecasts for the euro in 2025 to weaken to US$1.05. An analysis of futures prices indicates that Brent crude oil could average US$76 in 2025. This would represent a decrease of about 6% on the 2024 level.
At a US$/euro exchange rate of $1.05, the forecast annual Brent crude oil price for 2025 would be a little over €72 pb, which would leave the annual average Brent crude oil price down 3% in euro terms in 2025 relative to the average for 2024. With a further carbon tax increase planned for 2025, farm fuel prices are forecast to be unchanged on the 2024 level.
Following a significant drop in 2024, electricity prices are forecast to remain unchanged in 2025. This would mean expenditure per hectare on electricity and fuel in 2025 would remain unchanged on the 2024 level.
Other Direct and Fixed Costs – usage and price 2025
Projections relating to the macroeconomy in 2025 are conditioned by some uncertainty relating to global growth prospects, geopolitical concerns and trade relationship uncertainty. Global economic growth rates in 2025 are expected to be on a par with 2024, albeit that the new US administration creates some uncertainties. General inflation is expected to be lower in 2025, returning to levels that are more sustainable over the longer term.
An increase in wage rates in 2025 of 3% is forecast. The increase in general inflation affecting other direct costs in 2025 is forecast to be 1% on a per hectare basis.
At an overall farm level, fixed costs on dairy farms are forecast to remain unchanged on average in 2025.
Estimate of total input expenditure for 2025
At the Dairy enterprise level, direct costs per hectare are forecast to fall by 3% in 2025, with a 6% reduction on a per litre basis. Fixed costs for the Dairy enterprise are forecast to increase slightly due to the increased value of milk sales. Overall, total production costs per hectare are forecast to remain stable in 2025.
The outlook for dairy markets in 2025
The world dairy market in 2024 was characterised by rising dairy commodity prices, albeit from quite a low base, in the context of the level of production costs in the last couple of years.
There was some modest production growth in 2024 in key production regions, while demand was stronger. China’s production growth stalled and with depressed domestic consumption, this resulted in subdued dairy import activity.
The dairy market situation in 2025 will partially depend on factors which are difficult to anticipate, such as the impact of potential La Nina weather conditions in the Southern Pacific and geopolitical considerations, such as the potential imposition of US trade tariffs. Nevertheless the short term outlook is positive, given that dairy commodity prices have been moving to higher levels in recent months.
On the demand side continued weakness in Chinese dairy imports is anticipated, although it is thought that stock levels are in decline. More generally economic growth prospects, which are reasonably positive, may be affected by decisions to be made by the incoming US administration.
On the supply side milk production by the main dairy exporters should increase by about 0.3 percent in 2025.
Movements in the GDT auction are usually indicative of short-term developments in global dairy commodity prices and in farm milk prices. The GDT has continued to report positive price movements in recent auctions, indicating that the outlook for milk prices entering 2025 remains favourable.
In spite of bad weather and animal disease outbreaks, improving margins meant that EU milk production increased in 2024. For 2025, assuming more favourable production conditions, a slight further increase in EU milk production is possible, perhaps about 0.2% (0.3 mt).
While environmental pressures continue to weigh on the EU dairy sector, there will be few such concerns in the US. For the US dairy market the latest forecasts suggest a further 0.7% (0.7 mt) increase in US milk production in 2025. This increase would reflect a combination of increased milk yields and stable cow numbers (USDA, 2025).
There has been a relatively good start to the 2024/25 milk production season in New Zealand. Dairy margins should improve in the current production season. However, a slight reduction in dairy cow numbers is anticipated in 2025, with the added possibility of La Nina weather conditions. As a result, it is likely that New Zealand milk production could decrease by close to 1% (0.2 mt) in 2025.
The Irish milk price improved to a greater extent than milk prices in much of the rest of the EU in 2024. From a position close to the bottom of the EU milk price league in 2023, Irish milk prices exceeded the EU average in 2024.
The high price of butter has been the main driver of the recent increase in Irish milk prices. While the short term outlook for butter prices remains positive, past experience suggests that very high prices can only be sustained for a limited period. Therefore some weakening in butter prices later in 2025 may emerge. Given the seasonal nature of Irish dairy production, the longer the current buoyancy in butter prices continues, the greater the benefit this will have for the annual average Irish milk price in 2025.
It is forecast that the annual average Irish milk price for 2025 will be up about 5% on the 2024 level, giving an annual average milk price (actual fat and protein vat inclusive) of about 52.2 cent per litre in 2025, equivalent to a base price of about 47.1 cent per litre.
The Outlook for Milk Production in 2025
Irish milk production is estimated to have fallen by 2% in 2024, with lower cow numbers and slightly lower milk yields. Following a notable improvement in 2024, the milk price outlook for 2025 remains favourable. However, cost pressures will remain a concern, as will uncertainty relating to potential future changes to environmental policy including nitrates limits. It is unlikely that we will see an increase in cow numbers as farmers wait to see how policy will evolve. A 4% increase in milk production is forecast for 2025, with a stable dairy cow population and a recovery in milk yields, contingent on normal weather conditions.
The outlook for Dairy Enterprise Net Margins in 2025
This section considers the impact of changes in milk prices and production costs on gross and net margins on dairy farms in 2025. Prices for feed and energy are forecast to remain relatively unchanged for 2025, with a small reduction in fertiliser prices likely. A 4% increase in milk output per hectare is assumed for 2025.
In 2025, profitability per hectare, as measured by net margin on the average dairy farm, is forecast to increase by 35%. Average net margin per hectare is estimated to be €1,578 for 2024, and is forecast to rise to €2,126 in 2025, as illustrated in Figure 1.
Figure 1: Average Gross Output and Net Margin per hectare for 2020 to 2024e with forecast for 2025
Source: Teagasc National Farm Survey Data and Authors’ estimates. Note: e = estimate f= forecast
Figure 2 presents a margin forecast on a per litre basis for the average dairy farm, based on a 4% increase in milk production in 2025.
Figure 2: Average Gross Output and Net Margin per litre in Ireland 2020 to 2024e, with forecast for 2025
Source: National Farm Survey Data (Various Years) and Authors’ estimates. Note: e = estimate f = forecast.
Given that the average milk price in 2025 is forecast to improve by 5% compared to 2024, and with a marginal reduction in production costs, this would mean that gross and net margins are forecast to increase in 2025. Net margin per litre is forecast to increase by 29% in 2025, to an average of 17 cent per litre.
The above was adapted for use on Teagasc Daily from the paper titled: ‘Review of Dairy Farming in 2024 and Outlook for 2025’ authored by Trevor Donnellan and Emma Dillon, Agricultural Economics and Farm Surveys Department, Teagasc, and published in the Teagasc Outlook 2025, Economic Prospects for Agriculture.
