Planning for cash flow on the tillage farm in 2022
For tillage farmers reflecting on 2021 will be a pleasant experience. Weather was mostly favourable for the various tasks. With the focus on fertiliser prices, Michael Hennessy, Head of Crop KT, Teagasc emphasises the importance of planning now as 2022 will be different in comparison to 2021
Reflecting on 2021
Right from the start of the year the physical actions on the farm were completed on time and without any great difficulty. The spring will be remembered for being very cold, with this cold weather lasting all the way through to the end of May. The wet weather in May (163% of normal) helped to keep the canopy full and the expected disease pressure didn't materialise to any great extent. The weather in the run up to harvest allowed grains to fill with higher than acreage sunshine (e.g. 110% in Casemount, Dublin) and when we compare the solar radiation figures from www.met.ie we can see the value recorded for June and July 2021 were around 30% higher than from the same months in 2020.
Even crops such as potatoes which were affected by frost in May recovered well and have returned excellent yields this year.
Planting crops in the autumn has been a joy for most farmers. The exceptionally dry conditions in the back end caused farmers to pause for thought and many would probably have delayed planting for another couple of weeks if given the choice again.
However, hindsight is a great thing and with the benefit of that, I would say that where money was available all farmers would have purchased all of their fertiliser requirements for 2022 in June 2021. This would have saved a huge amount of money for 2022. However this didn’t happen and the facts are high fertiliser prices are with us, probably for all of the 2022 season.
Plan fertiliser use
There has been a lot said about fertiliser prices and if the prices will increase further or drop through the season. Unfortunately, it looks like the former is probably more likely.
Therefore, the best plan of action that any farmer can take is to map out the fertilisers which are going to be used for 2022. All farmers must consider how these fertilisers can be acquired and delivered to the farm in good time so that the most efficiency can be gained from the fertiliser.
There are a lot of messages about fertilisers and how to get the best efficiency however most of these messages will revolve around getting the basics correct to maximise efficiency of every kilogram applied. These include lime, high P&K soils, accurate spreading, etc. but I will leave this for another day.
For tillage farmers, the cost difference between fertiliser in 2022 in comparison to 2021 is acute and very worrying. Ensuring there is sufficient cash flow to purchase fertiliser so that its on farm when its needed is going to be difficult for many farmers. Where a farmer is heavily reliant on merchant credit this farmer carries the highest risk.
These farmers should ask a number of questions;
- Can I get the fertiliser supply I want, when I want it?.
- Can I get enough finance to pay for the fertiliser?.
- Will I get understanding from other creditors as my cashflow will be very tight in 2022?
As was pointed out earlier in this article, planning is the only way that these farmers can step their way through 2022.
Planning your way through 2022
The first action must be to create a Nutrient Management Plan for all crops grown in 2022. The next step is to complete a financial budget for 2022 and outline as far as you can the critical expenditure e.g. crop inputs including fertilisers, machinery repayments, repairs, etc. and of course household and living expenses. You may need some help with this and any good advisor can help you with this task. Once this is completed you are in a strong position to talk to people who give you credit through the year.
Speak to your merchants to ensure you have a good understanding about the availability of fertilisers, especially early in the season, establish what terms the merchant will expect, and as importantly how much extra you will have to pay this year above what you would normally pay for an extended credit limit. The tricky part might be that once you order your fertiliser the merchant may want money up front. So you should plan to have more money committed to growing your crops earlier in the season, this year in comparison to other years, with a reasonable proportion of your fertiliser paid for up front.
Talking to your bank will be the next port of call to establish how much of a loan facility can be extended to you from early in the season and right throughout until harvest. There is no doubt the credit facility in the bank will be at a lower interest rate than that from the merchant.
The enormous strain on many farmers cash flow may have an impact on other creditors. Again, communication with people expecting money from you is key. This extends to landowners who may well be looking for part of the land rental up front.
Forward selling grain and purchasing fertilisers
However, planning cuts both ways, given the increased risk of growing crops this year clever farmers will be looking at forward selling a proportion of their grain and taking advantage of the historically high prices this year. Forward selling grain and purchasing fertilisers at the same time makes sense from risk reduction point of view. These two critical parts in growing crops are the most important parts to ensure you make a margin or you don’t.
So my final message for now, and one you will hear a lot from Teagasc in 2022, is to sit down and spend time planning and organising your inputs (and sales) early in the season and don’t leave it to the last minute.
National Tillage Conference
The 2022 National Tillage Conference will take place virtually, split over two days. The first session took place on Thursday, 13 January and the second session will take place on Thursday, 27 January. To register for the National Tillage Conference Part 2 webinar and for other webinars as part of Tillage Month, go to: www.teagasc.ie/tillagemonth/
The first session of this year’s Tillage Conference presented research findings that aim to support farmers’ decision making for the 2022 season, as the fertiliser market continues to struggle with elevated prices and supply chain issues. Watch the first session back here below
Watch webinar recording below
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.