Wholesale gas prices jumped to another new record peak of over 700p/therm (880c/therm) at the end of last week before falling back over recent days to 485p/therm (564c/therm).

This volatility follows a period of moderation after a record peak was previously set in the days after the Russian invasion of Ukraine, which had been the culmination of a prolonged rise in wholesale prices in the latter part of 2021.

It was this that caused record high fertiliser prices for farmers for the 2022 growing season, which had eased back over recent weeks.

However, the latest surge in gas prices means that fertiliser prices will also surge again if wholesale gas prices sustain even a part of the price surge over recent weeks.

Ominous signs

The signs are currently ominous as news bulletins are dominated by Europe’s fear for gas costs and supply as the colder winter months approach.

As well as the issue of fertiliser prices for the remainder of this year and into 2023, there is also the question of supply.

Recently, Yara, one of the major global fertiliser producers, announced that it was taking over one-third of its capacity out of production, as it fears the implications of current gas prices making fertiliser prices so prohibitively expensive that it would become unsaleable.

Processing dimension

Farmers will also be indirectly impacted by the consequences of gas prices and availability in the processing industry.

This particularly applies to the pig and poultry processing sectors, which are large users, while it is a major energy source for dairy processing.

The meat industry is also a user for retail packing, though alternatives have become increasingly available for this.

The weak euro against the US dollar benefits the processing industries selling outside the UK and EU

As well as the direct and indirect consequences of gas prices, farmers are also particularly exposed to energy costs, with crude oil prices also on the rise over recent days from $92 per barrel of Brent crude in the middle of August to $105 per barrel before falling back again.

The price we pay at the pump is very much dictated by the exchange rate between the euro and US dollar and with the euro value dipping below $1 again this week compared with $1.20 this time last year, the pump price is made worse in the euro zone.

The weak euro against the US dollar benefits the processing industries selling outside the UK and EU.

For example, the Irish dairy sector has had a modest 12% growth in volume sales to the US in the first half of 2022, but a 43% increase in value, driven by exchange rate as well as rising market prices.

Market response

So far in 2022, dairy and tillage farmers have been protected from the surge in input costs by rising market prices.

For a short period, beef and sheep farmers were relatively protected, though price falls over recent weeks have ended this and these sectors have become more vulnerable.

They are in no financial position to withstand a further surge in input costs and the entire livestock sector is vulnerable heading into winter, as so much feed had to be used to offset the lack of grass growth caused by low rainfall in many parts.

If farmers are faced by a further increase in input costs, more revenue will be required for production to remain viable.

With consumers across the world hit by the highest levels of inflation for four decades, it is doubtful if they can withstand a further surge in food prices.

The FAO food price index has reported four monthly falls in a row up to July, but, despite that, it is still 13% higher than it was in July 2021.

There has been much focus on our ability to keep the lights on this winter and across the EU, the concern is how to manage with reduced gas supplies.

At least these problems are being addressed at Government and EU levels. The Irish Farmers Journal has consistently highlighted just how close we are to the edge with food production, not just in Ireland but across the EU.

Crisis has been averted so far in 2022, which may have created complacency, but this cannot continue given the risks that lie ahead.

In the drive to reduce emissions, the EU has lost all focus on production; this simply cannot be allowed to continue.

For more agribusiness, listen to our down to agribusiness podcast here.