Invest wisely following bumper harvest
Will this be classed as a bumper year for tillage farmers in years to come? Michael Hennessy, Teagasc Head of Crops takes a closer look and suggests wise options for spending the increased revenue coming through the farm gate while reducing the overall tax bill in the process
Bumper year for tillage farmers
Harvest is coming to a rapid finish for most farmers. There is still a little way to go in later ripening parts of the country (midlands and north west) and larger growers are still finishing off their harvest. Spring beans are yet to be completed but reports of the autumn planted crops are good. Growers couldn’t but be happy with the harvest this year. There isn’t a crop, so far, which has disappointed, in yield or quality, however the later sown spring barleys didn’t yield as well as the earlier sown crops but this is to be expected most years. Reports from around the country quoting the highs and lows of yields leads me to think the average farm yields are likely to be close or surpass previous records. This is very satisfying considering the price of grain. Will this be classed as a bumper year for tillage farmers in years to come?
Re-investing the surplus
The increased revenue coming through the farm gate will prompt many farmer accountants to look closely at the overall profitability and the level of tax which has to be paid. Questions will be asked as to how the tax bill can be reduced. The first place many will look at is the forward purchase of fertiliser and perhaps the next place, the purchase of machinery. For many the place least likely to get a good airing is topping up your pension fund. Lets look at each of the options in turn.
Investing in your soils
Investing in your soils is an excellent way to get consistent return on money. However being sensible is the key. Where soils are at index 4 (high P and K) then there isn’t any need for addition P and K in the field. However watch for high P readings with high pH (over pH 7.2) as P availability to the plant will be decreased.
Fields which are low in lime will be inefficient in using nitrogen, phosphate (P), potassium (K) and almost all other nutrients. Any deficits should be rectified in all fields. Fields which are at index 1 for P and K will always yield lower than fields at index 2 or higher no matter how much P and K is applied to that crop. In these circumstances build-up of the soil reserves are necessary. However the price of chemical fertiliser this year is much higher than previous years. Its easy to dismiss this inputs as being too expensive but we need to step back a little and analyse the costs involved. P and K fertiliser recommendations for crops at Index 1 or 2 are made up of two components; a) fertiliser for maintenance - to produce the crop, and b) fertiliser - to build up sol reserves. Regardless of where the index is (1,2,3) the field will require a maintenance application of P and K, even if the price of fertiliser has risen sharply. The only extra spend which is in question is whether the build up quantity is applied or not. The table below highlights the different quantities and costs involved.
Table 1 Costs of build up of index 1 and 2 for P and K in 2020 and 2021
As the table shows there are higher costs this year but not as significant as you might first think. Protecting next year’s yields must be to the forefront of your mind.
Buying machinery, new or second hand is always an option but only where that asset is put to good use and does not add additional costs to the machinery bill. Results from Teagasc clients shows the costs of machinery for a typical grower is €345/ha (€140/ac). Efficient growers are able to reduce these costs to close to €296/ha (€120/ha) and in exceptional cases to below €250/ac (€100/ac). Buying a machine to offset tax (using capital allowances for the next 8 years) will reduce your tax bill but the resulting re-payments of borrowing (unless the machine is bought from cash flow/savings) will be substantial for the next 4 -5 years and can be crippling if the farm experiences a low income year. Of course TAMS can help with certain new machinery purchases however unless you have your application in already then the next closing date is November. A decision on your application will only come through early next year. Your local Teagasc advisor has an excellent Machinery Cost Calculator which can analyse your current machinery costs and help you when making the right decision for your farm. Weigh up this option up carefully before jumping into more machinery.
Investing in your pension
Investing in your pension can be very tax efficient in any given year, certainly more than machinery. The tax relief is either 40% or 20% depending on the rate of tax you fall into. At the top tax rate investing €100 into the pension only costs you €60 (as you reduce your tax bill by €40) but the €100 will continue in an investment fund earning money for you. In circumstances where you have no pension or a small pension fund this year might be a good year to top up the fund.
The Teagasc Crops Forum, Part 1 of which was held on Thursday September 9th continues with Part 2 on Thursday September 16th. Both are webinars and start at 11.30am. Registration and more information here . The first webinar dealt with the selection of varieties, the influence of septoria on wheat for the future and also on short and medium term grain market prospects. The second webinar on September 16th will deal with carbon capture and nitrate loss on tillage farms. If you missed Part 1 you will have an oppertunity to catch up with it here on Teagasc Daily.
Find out more information and advice from the Teagasc Crops team here. The Teagasc Crops Specialists issue an article on a topic of interest to tillage farmers every Thursday on Teagasc Daily.