Tillage farmers are facing a potentially significant decrease in margins for 2022 compared to 2021.
That is according to Teagasc, which formed the opinion based on:
- Increasing costs; especially fertiliser prices;
- A return to trend yields;
- Reflecting forward grain prices.
Tillage margins 2022
When comparing gross margins for 2022, beans, a crop with low fertiliser inputs, is now “very” competitive against cereal crops.
Over the past six months, fertiliser prices have continued to increase at what the state agency described as “alarming” rates.
“Expectations of a doubling in the cost of nitrogen are being widely talked about for next year,” it highlighted in a statement.
The continued rise in the cost of natural gas, a key input in producing nitrogen fertilisers, is driving increases.
Costs of other major elements such as Phosphorus (P) and Potassium (K) have doubled in the past few months.
Furthermore, the body expects these increases to contribute to higher costs for 2022.
As fertilisers are one of the largest inputs to tillage crops, these huge cost increases will “severely” impact profit margins in 2022.
Winter wheat and spring barley
Teagasc budgets show that tillage margins in 2021 are well above the five-year average.
The effects of increased grain price and good yields give a gross margin in:
- Winter wheat of €1,302 per hectare;
- Spring barley of €916 per hectare.
It calculated both gross margins using 2021 output and input prices with estimated national average yields.
Comparing margins from 2021 to predicted margins in 2022:
- Winter wheat margins (€554 per hectare) decrease by 57%;
- Spring barley (€444 per hectare) decrease by 52%.
The 2022 margins are based on average yields, Sept 2022 forward grain prices, which is €30/tonne drop compared to 2021), and an increase in fertiliser prices of 100% compared to 2021 (with CAN at €450/t and 10.10.20 at €550/t).
It did not factor in other cost increases in direct inputs such as fuel and spare parts. These will also “erode margins” further.
Other crops such as beans, a legume crop fixing its own nitrogen, is not as dependant on chemical fertiliser inputs. Teagasc said it will not see as big a decrease in margins next year, but margins are impacted, nonetheless.
The predicted margin in beans is €529/ha in 2022 compared to €702/ha in 2021 – a decrease of 25%.
It based the 2022 margin on trend yields, grain price of €245/t and an increase in fertiliser prices of 100% compared to 2021.
“There is high volatility in the fertiliser markets at the moment. The fertiliser industry in Ireland is unsure where the market will settle in early spring 2022 when most fertiliser is purchased.”
Teagasc said growers should also be aware the 2022 predicted margins are calculated on a relatively high grain price compared to the last five years, but this price may not be available by next harvest.
Work out costs
Michael Hennessy, head of Crops Knowledge Transfer in Teagasc, said:
“The tillage production cost increases are looking extreme at this point.”
“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.”
He added: “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.”
Mark Plunkett, a soils and plant nutrition specialist in Teagasc, indicated there are several actions that all farmers can look at to decrease chemical fertiliser use and get the best from any fertiliser which is applied.
He said: “The starting position is to ensure your soil pH is correct and then tailor your fertiliser to the soil P and K index.”
Plunkett pointed out that adjusting potassium levels to take account of straw incorporated and utilising available organic manures to get the best from its nitrogen content is essential to realise chemical fertiliser savings in 2022.
Concluding, the body urged tillage farmers to complete a financial analysis of their business in 2021.
They should then project the impacts of the increased costs on margins in 2022 for their enterprise.