A recent Teagasc webinar gave three finance experts an opportunity to discuss how growers can best manage the credit challenge they now face, given the rise in crop input costs that will impact on their businesses during the 2022 growing season.
Those taking part were: financial specialist James McDonald, Glanbia’s John Carroll and AIB’s Liam Phelan.
McDonald confirmed that the agronomy of crops in 2022 must be carefully planned.
“Chasing a bumper yield in 2022 could be quite costly. Last year, 3.5kg of grain covered the cost of one kilo of fertiliser nitrogen. This year, that ratio has risen to almost 12:1,” he said.
“So there is a danger that we could over spend to protect our investment. But if we do that, we will erode the profitability of the crop.”
According to McDonald, those with winter crops already in the ground are very limited in terms of what they can do; but it’s important to get plans for the growing season correct.
“On fallow land, a number of options are currently available,” he explained.
“Adding lime to improve soil nutrient availability must be considered as should using animal manures to reduce a reliance on chemical nitrogen and growing a spring protein crop.”
McDonald also pointed out that contract growing a crop or forward selling a proportion of a crop are two ways by which tillage farmers can lessen their financial exposure, when it comes to managing their businesses in 2022.
“There is no guarantee that input prices will go back to where they were. I sense that a new normal will be established, where input costs are concerned,” he said.
“And inflation is growing too.”
According to John Carroll, no one knows how close we are to the peak in fertiliser and other input costs.
“Urea prices have come off the top over recent days. But, generally speaking, nitrogen prices have moved on again since Christmas,” he said.
“There continues to be a global scarcity of fertiliser while major producing countries continue to protect their own domestic markets.
“At present there are export bans and quotas in place in Russia, China, Turkey and Egypt.”
The Glanbia representative also indicated that all these constraints are having an impact on the international market for fertiliser.
“In Europe, the gas situation continues to be very difficult. In fact gas futures for April have doubled over the past few weeks,” he said.
“High gas prices mean high nitrogen prices: otherwise, plants will close again.”
Where potash is concerned, Carroll indicated that Belarusan sanctions continue to be increased in terms of their severity.
“These are now having major impact on potash imports into Europe. As a consequence of all this, fertiliser imports into Ireland are well behind where they normally would be for this time of the year,” Carroll continued
“At the present time most products are available in Ireland and we are asking farmers to come and talk to us while this remains the case.”
But, Glanbia is concerned that when the big push for fertiliser comes on in March and April, product will not be available.
“There is now a genuine concern that fertiliser will not be available in sufficient quantities when the big demand comes on in a few weeks’ time,” Carroll added.
Where credit issues are concerned, Carroll had a very clear message:
“Each farm will, be different, in terms of its credit requirements for 2022. So it is very much a case of coming to us and discussing the matters at hand.”
Glanbia business managers and agronomists will be available to speak to all customers over the coming weeks.
“It’s then a case of sitting down and working through a plan to allow each farm business get through the spring months,” Carroll said.
James McDonald suggested that a farmer with 100ha of land might need an additional €40,000 of credit to get the business through the next few months.
Responding, Carroll said that he was aware of these figures adding:
“There is a facility, which will allow farmers to forward sell some grain. Sometimes, this can be the prudent thing to do. But, fundamentally, we need these farmers to come talk to us.
“We also want to farmers to take fertiliser fairly soon, while we have product available for them.”
Liam Phelan confirmed that the additional €40,000 credit figure cited by James McDonald was real.
“This will be financed by farmers themselves, merchants, the banks or a combination of all three,” he said.
“However, many tillage farmers are coming into 2022 in a relatively strong position. They had enjoyed a good harvest in 2022 and prices were also good.
“According to Teagasc figures, tillage incomes were up 44% in 2021 relative to the previous year.
“We are also looking at forward prices. They are also very strong,” Phelan added.
A cash-flow problem
According to the AIB representative, the banks are looking at the current input costs’ scenario as a cash-flow problem rather than a fundamental business model related issue.
“The long-term sustainability of tillage farms is not in question; it’s really about getting over the next 12 months,” he said.
Phelan then pointed to a number of credit related options now available to farmers. Farmers who have undertaken capital development work on their farms over the last 12 months can seek to refinance this work.
Such an approach will provide an immediate cash injection into the business.
“Farmer Credit Lines are also available at the present time. These are working capital facilities. These facilities come with a 3.75% interest rate,” Phelan continued.
“They have been designed to allow farmers get good cash prices for their inputs. All repayments must be cleared with the year.
“And, finally, banks will provide farmers with unsecured lending of up to €100,000.
“There is also a very timely product available at the present time, called the Brexit Impact Loan Scheme. Unsecured lending from €25,000 up €1.5 million is available under this measure. All the pillar banks are offering this product,” Phelan concluded.