Tillage farmers are facing a substantial decrease in margins for 2022 compared to 2021 due to increasing costs, especially the “extraordinary increase” in fertiliser prices, according to Teagasc.
Teagasc notes that, over the past six months, fertiliser prices have continued to increase at alarming rates, with expectations that the cost of nitrogen (N) could double next year.
The authority says that the increases are driven by the continued rise in the cost of natural gas, which is a key input in the production of N fertilisers.
Costs of other major elements, such as phosphorus (P) and potassium (K) have doubled in the past few months, with these increases expected to contribute to higher costs for 2022.
These “huge cost increases” will severely affect profit margins in 2022, Teagasc says.
When margins for 2021 are compared with the predicted margins for 2022, winter wheat margins will decrease by 57% and spring barley will fall by 52%.
The predicted 2022 margins are calculated based on average yields, September 2022 forward grain prices (€30/t lower than in 2021) and a 100% increase in fertiliser costs.
Fuel and spare parts costs are not factored into these calculations.
Other crops, such as beans, are not as dependent on chemical fertiliser inputs and will not see as big a decrease in margins next year, but margins will be affected nonetheless.
The predicted margins in beans will see a decrease of 25% compared to 2021.
Teagasc warns that these predictions are based on a relatively high grain price, compared to the last five years, but this price may not be available by next harvest.
Michael Hennessy, head of Crops Knowledge Transfer in Teagasc, said: “The tillage production cost increases are looking extreme at this point and all growers need to sit down and work out the costs on their own farm.
“All avenues of protecting margins should be looked at on-farm, including forward selling grain, targeting fertiliser to minimise use and costing out fertiliser types to maximise money spent.
“Growers need to be very careful when committing to large outlays such as machinery purchases and especially land rental, as the rental demands from landowners will quickly erode margins in this high-cost environment,” Hennessy added.
In dealing with fertiliser usage, soils and plant specialist Mark Plunkett suggested: “The starting position is to ensure your soil pH is correct and then tailor your fertiliser to the soil P and K index. Adjusting K levels to take account of straw incorporated and also utilising organic manures is essential to realise chemical fertiliser savings in 2022.”
Teagasc is urging tillage farmers to complete a financial analysis of their business in 2021 and then project the effects of the increased costs on margins in 2022.