Soaring input costs to hit farm profits in 2023

• Huge increase in UK fertiliser costs

• Commodity prices have eased back

• Plan ahead to respond to challenges

Higher working capital requirements are set to squeeze arable profitability for Harvest 2023 – with a big impact on cashflow too, say experts.

Harvest 2022 was a profitable year for many arable growers who purchased the bulk of their inputs before the massive increases in input costs and benefited from the significant increases in grain prices.

But input costs are significantly higher for Harvest 2023 and commodity prices have eased back from highs seen earlier in 2022, says Rhodri Thomas, head of rural at farm business consultants Strutt & Parker.

The economic downturn, shifting sands of agricultural policy, climate change, the biodiversity crisis and soaring input prices are all likely to be critical influences within the rural sector in 2023, says Mr Thomas.

Accelerated change

“It is clear we are facing a period of accelerated change in terms of land management. This time of year is ideal for land managers to start gathering information and data to help them work out the best ways to respond to the challenges they will face.”

Planning ahead and budgeting are important. “The good news is that some new and exciting opportunities are also emerging, and land managers would be wise to be proactively thinking about their options to identify where the best opportunities might lie.”

Sebastian Graff-Baker, of farm business consultants Andersons, says ongoing uncertainty surrounding future fertiliser availability has encouraged more growers to secure 2023 supplies early – with some even securing supplies for 2024 harvest.

Commitment to buy fertiliser at three to four times the 2021 price would logically point towards a corresponding commitment to sell a proportion of the harvest at a price which should generate an acceptable level of profit and with a manageable level of risk, he says.

Winter cropping

“The increase in working capital requirement may require an increase in the level of security where funds are borrowed and will see an increase in finance costs,” says Mr Graff-Baker.

“But where cash surpluses exist from 2022, the opportunity  to reduce long-term borrowing should be taken where appropriate.”

Favourable autumn conditions mean a rise in the winter cropping area for harvest 2023, according to the Agriculture and Horticulture Development Board (AHDB) early bird survey, conducted in partnership with Andersons and the Association of Independent Crop Consultants.

Those crops are generally performing well, with 87% of the UK’s winter wheat crop said to be in good-excellent condition and overall prospects looking good for the season.

Careful nitrogen management will be required in certain areas moving forward, says the AHDB.

Soil health is key to profitability

More growers must  recognise the improvement that soil health can make to arable incomes, say farm business consultants Andersons.

“As an industry, we have, on average, depleted soil organic matter – albeit inadvertently,” says the latest Andersons Outlook report, which examines the prospects for UK farming in 2023.

This has resulted from the increased use of synthetic crop nutrition and crop protection products, and perhaps excessive cultivations, without maintaining the beneficial effects of grazing livestock and crop diversity as part of a wider rotation.”

In the past, says the Outlook report, this has been based on commercial logic – assessing combinable crop profitability only using the convention of annual profit and loss, without placing a cost on the reduction of soil organic matter.

The report says there are already the beginnings of farming businesses being paid to sequester carbon in order to help reduce atmospheric carbon dioxide emissions, using soils that have low levels of carbon as a result of past farming practices.

“Clearly one of the key issues is to find the balance between continuing to produce combinable crops in a way that generates profit from year-to-year whilst delivering a reward from sequestering carbon and in doing so increase the health of soils.

“With the right management this, in turn, should improve yields and ultimately profitability. Restoring soil health is a long-term undertaking which, as an industry, we need to buy into at all levels, not least land tenure and security.”