Farmers who want to “risk manage” fertiliser purchases should consider buying half their fertiliser requirements for 2023 in advance, according to a Northern Ireland-based advisor.
Omagh-based chartered accountant Seamus McCaffrey, believes this approach represents an effective way of ‘risk managing’ one of the most expensive inputs required on farms at the present time.
“Farmers are operating in an extremely volatile environment, where the purchase of inputs is concerned,” he said
“Agflation is currently in excess of 20%. But the price of fertiliser has almost trebled over the past year. And no one can predict with any certainty how this market will perform over the coming months.”
According to McCaffrey, risk management is all about bringing stability to bear within a business model.
“Fertiliser prices may fall back over the coming months. On the other hand, they may strengthen further,” he said.
“By buying enough fertiliser now to cover first grazing and first-cut silage 2023, farmers are bringing a degree of certainty to the running of their businesses for the coming year.”
McCaffrey has outlined potential payment options available to farmers to plan ahead in relation to potential fertiliser requirements for 2023.
Step one in this process, according to McCaffrey, is for farmers to establish an accurate cash flow projection for their businesses.
He said farm accountants can work through this process with farmers.
McCaffrey said: “Armed with these figures farmers can then go to their banks. Two fundamental questions then arise: Is there scope within an existing overdraft to pay for fertiliser? Or should an appropriate loan or finance scheme be set up?”
McCaffrey also confirmed that many farmers across Northern Ireland could have significant tax bills to pay at the end of January next.
“Many businesses registered strong profits for the 2021/22 year, the final tax payment for which will be paid at the end of January 2023,” he said.
“And despite the increase in input costs, the current financial year has seen a significant number of farms across Northern Ireland generating very healthy performance figures.”
The Omagh-based accountant said that from a tax management perspective farmers should consider the option of averaging farm accounts over a two or five-year period. He believes this would in turn give farmers the option of electing the most tax-advantageous option.
“This is an issue that farmers can discuss with accountants when tax returns are being submitted to HM Revenue and Customs,” he explained.
“The reality is that farming in Northern Ireland is about to enter a period of increasing rates of tax.”
But McCaffrey has advised that farmers can take steps to moderate their “tax liability” including detailing expenditure on farm repairs and the purchase of new or secondhand machinery.
“Investing in a pension is another option in this regard,” he said.