All of the main banks confirm that the farming sector is coming into a period of increased costs in a strong financial position.

Eoin Lowry, head of agriculture with Bank of Ireland (BOI), said: “Farmers are well positioned financially at present, with farmer overdraft utilisation [the proportion of overdraft limits being used] having declined in the last 12 months to the lowest level in the past four years.”

Deposits are also up, with BOI seeing an increase in agri deposit balances of 10% year on year, a continuation of the trend seen since March 2020.

The experience in AIB is similar, with overdraft utilisation at the end of September below last year and well below the five year average.

Donal Whelton, head of agriculture at AIB, said: “Output prices in most farm sectors have been strong this year.” He said increases in input costs for the first half of the year were modest, noting most farm input costs are front-loaded. These factors, “coupled with good yields in the tillage sector, and good grazing conditions for the most part, has meant that farm income on most farms will be improved in 2021, and hence cash reserves should be in a strong position as we enter 2022”, he said.

Ailish Byrne, head of agriculture at Ulster Bank, agreed that farmers have had a good year and are in a strong working capital position heading into 2022.

Farm supply chain

While the effect of rising input costs won’t be felt until next spring for most farmers, fertiliser importers, co-ops and independent merchants are all seeing significant cost increases now due to heightened fertiliser prices.

We are assessing on a case-by-case basis

Eoin Lowry of BOI said: “Fertiliser importers’ existing facilities would buy a lot less volume of fertiliser this year at current increased prices. However, we have been engaging with them so that we can support our customers to purchase similar quantities as in other years.

“We are assessing on a case-by-case basis and realise that we may need to increase the level of facilities. We are supporting our merchants and co-op customers with facilities in order to support the purchase of fertiliser.

To date, we have not had a significant amount of requests for increased working capital from our fertiliser importers, co-op and independent merchant customers

“We understand volatility in agri-commodities markets and remain comfortable to support our customers through the peaks and troughs of the commodity cycle.”

In contrast, Donal Whelton of AIB said: “To date, we have not had a significant amount of requests for increased working capital from our fertiliser importers, co-op and independent merchant customers, but if additional support is required we will work with customers on a case-by-case basis to find the most appropriate solution for their business.”

Working capital needs

The banks all envisage increased working capital requirements at farm level in 2022.

Donal Whelton of AIB said: “Given the rise in fertiliser, feed, energy and diesel costs, we would expect that some farmers will require additional working capital support in 2022.

“In general, concentrate feed and fertiliser account for the highest proportion of input costs on Irish farms.

“To put this into context, a 100% increase in fertiliser costs and a 30% increase in feed costs would impact a 100-cow dairy farmer’s cost base by circa 6-7c/l, which equates to circa €35,000 in additional costs assuming a milk supply of 550,000l.

“Similarly, for a mixed cereal tillage farmer operating a 60ha land base, the increase in fertiliser prices alone would increase fertiliser costs by circa €19,000.

“This will significantly hamper margins on farms, especially if output prices were to come back from their current position.”

Increased investment activity

AIB notes that farm investment activity in 2021 has been very strong, with lending to the sector up 20% year on year for the first six months of 2021.

The bank has seen a significant recovery in lending to the beef sector following a reduction in investment activity associated with Brexit.

Whelton said: “The cost of the key raw materials for farm construction have also recorded a notable increase in the past 12 months.

“The rising costs of construction materials, aligned with the rising costs of farm inputs, may, however, cause some farmers to rethink their planned farm investment over the coming months.”

Farmer concern

Ulster Bank’s Ailish Byrne said: “The vast majority of farmers that Ulster Bank is engaging with are reluctant to purchase fertiliser currently; they are waiting to see if prices fall in the spring. Farmers are also communicating a concern on the availability of fertiliser.”

Availability of all of our products and services for existing customers is unchanged

Ulster Bank, currently in the process of a phased withdrawal from the Irish market, confirmed that it is continuing to serve existing customers with their working capital requirements, whether this is to cover additional costs due to increased input prices or an increase in farm output levels.

“Availability of all of our products and services for existing customers is unchanged,” the bank said.

Advice is to act early

It is important to remember that in terms of managing through the current cycle, banks and credit providers have experience of managing volatility and that farmers are fortunate that current high input prices coincide with high farmgate prices.

Eoin Lowry of BOI advised farmers to analyse costs thoroughly and use inputs, in particular fertiliser, carefully this year and to take into account that we are likely entering into a period of margin pressure.

He said there is a long number of months to play out yet and he would be hopeful that we will get adequate supplies of fertiliser into the country. He advises farmers to speak to their merchant or co-op about fertiliser supply and credit, if they usually avail of this, at an early stage. If they have working capital concerns, they should talk to the banks early.

Permanent TSB, which is seeking to grow its presence in the Irish farming market, said it understands that farmers are likely to experience margin pressure in 2022.

The bank’s head of business banking Mags Brennan said: “Whether they are Permanent TSB customers or prospective customers I would urge them to examine their working capital needs and come to us with their plan so we can see how best we can support them. We are open for business to support farmers, be it for working capital or indeed their long-term investment needs.”

AIB’s advice to farmers is to take some action now, so they can be in control, rather than getting to April or May next year and realising that they have a cashflow challenge.

Donal Whelton said: “One of the most straightforward things to do is to quantify how much was spent on feed and fertiliser in 2021 and then estimate what the likely spend on both will be in 2022.

“While at this stage it will be very much an estimate, it will be easy to see what the financial impact of say a 30% increase in feed costs and/or a 100% increase in fertiliser costs would have on the business.

“Once you have an estimate of what the financial impact may be, you can then start to look at some options that are available. If bank support is required, talk to your bank sooner rather than later and a have some analysis done prior to engaging, as it will be well worthwhile.”

All of the banks have a range of working capital options available.