The dynamics for the 2022 growing season have changed. Growers typically chase output while keeping a close eye on cost.
But the dramatic rise in input costs this season means that this approach may not be economical, as the breakeven point of crop production has moved.
This year, 2022, will be about the careful management of crop choice, agronomy and costs and deciding how much to compromise yield to reduce spend.
It will be a balancing act, ensuring we don’t overspend while still trying to reach profitable yield levels.
This was one of the key messages from last week’s Teagasc crops webinar. The message was driven home by the simple example that, based on using normal rates of inputs such as fertiliser, sprays and seed at today’s prices, on average this would equate to an extra €160/ac in cost or €40,000 for a 250ac tillage farm.
Growers will do everything in their power to minimise this cost, including reducing rates, carefully choosing spring crops, importing and using organic manures etc. But most growers will still incur extra cost this season.
As most merchants will not provide the additional credit to cover this, many growers will be forced to finance this extra cost themselves, on top of their existing credit requirements. In some situations, growers may be able to forward sell a proportion of their grain against the high prices.
AIB’s Liam Phelan explained that from the banks’ perspective, most tillage farmers have entered 2022 in a financially strong position and the longer-term sustainability of the sector isn’t under question. Instead, he sees high costs as a 12-month cashflow issue.
“It’s really about getting over the next 12 months with as little damage as possible to everyone’s reputation and track record,” he said.
It’s designed to help farmers buy products in a timely manner
He outlined a number of options for growers who must source extra credit this season. These include refinancing capital projects on the farm and opening a farmer credit line.
The credit line is a working capital facility provided by the bank at 3.57% interest. It’s designed to help farmers buy products in a timely manner.
Alternatively, farmers could take out unsecured finance, typically up to €100,000. Liam advised against putting working capital facilities out over a longer-term however, as it’s really just kicking the can down the road and there’s no guarantee that prices will return to what we deem to be normal next year. However, another option which could be particularly useful for growers this season is the Brexit Impact Loan Scheme.
All pillar banks are partnering with the Strategic Banking Corporation of Ireland to provide finance to companies impacted by Brexit. Primary agriculture qualifies for this scheme.
Farmers can avail of unsecured finance for anything from €25,000 to €1.5m, with rates ranging from 2.5% to 3.5% at terms of between one and six years. The funds can be used for farm working capital, which may be particularly useful this year.
Regardless of the situation, talking to credit providers early is essential. Before doing so, growers need to know how much of a gap needs to be filled. This will likely involve doing some form of a cash flow with your accountant or adviser.
Once you know how much is needed, it’s all about finding the best value, whether that’s from merchants, banks or credit unions.