Tillage profit warning over rising fertiliser prices

Costs of major elements such as phosphorus and potassium have already doubled, in the past few months

Recently quoted prices were in the order of €460 for CAN, €550 for 10.10.20, and €450 for Os.

Tillage farmers have been warned by Teagasc that profit margins could slump in 2022 due to increasing costs, including an “extraordinary” increase in fertiliser prices.

Michael Hennessy, Head of the Teagasc Crop Knowledge Transfer Department, said in a recent bulletin to growers: “Over the past six months, fertiliser prices have continued to increase at alarming rates. Expectations of a doubling in the cost of nitrogen are being widely talked about for next year.“ 

Costs of other major elements such as phosphorus (P) and potassium (K) have already doubled, in the past few months. “As fertilisers are one of the largest inputs to tillage crops, these huge cost increases will severely affect profit margins in 2022,” said advisers.

Teagasc budgets showed that tillage profit margins in 2021 are well above the five-year average, with the effects of increased grain price and good yields giving gross margins in winter wheat of €1,302 per hectare and spring barley of €916 per hectare.

But predicted margins in 2022 are only €554 per hectare for winter wheat (down 57%) and €444 for spring barley (down 52%). These are based on September 2022 forward grain prices which are €30 per tonne behind 2021 prices), and on fertiliser prices of €450/tonne for CAN and €550 for 10.10.20.

Recently quoted prices were in the order of €460 for CAN, €550 for 10.10.20, and €450 for Os.

Other cost increases in direct inputs such as fuel and spare parts were not factored in but will erode profit margins further.

The 2022 predicted margins are calculated on a relatively high grain price compared to the last five years, and growers should be aware this price may not be available by next harvest.

Advisers said beans, a crop with low fertiliser inputs, will be very competitive compared to cereal crops. The predicted margin for beans is €529/ha in 2022 (compared to €702 in 2021).

There is high volatility in the fertiliser markets at the moment and the fertiliser industry in Ireland is unsure where the market will settle in early spring 2022, when most fertiliser is purchased, according to Teagasc.

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 for protecting margins should be looked at, he said. “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.” “Where rental land is run down, and has a poor lime status, with low soil levels of phosphate and potash, then the required fertiliser to grow a crop will add up quickly, and only a modest yield can be expected from this type of field,” said advisers.

“Factoring in land rental costs, unless land rental is very reasonable, a modest yield, and much higher fertiliser costs, a loss-making scenario is quite likely”.

Mark Plunkett, a soils and plant nutrition specialist in Teagasc, indicated actions farmers can look at to decrease chemical fertiliser use, and to get the best from any fertiliser which is applied. “The starting position is to ensure your soil pH is correct and then tailor your fertiliser to the soil P and K index. Adjusting potassium levels to take account of straw incorporated and also utilising available organic manures to get the best from its nitrogen content is essential to realise chemical fertiliser savings in 2022”.

At EU level, Agriculture Commissioner Janusz Wojciechowski said the EU Commission is monitoring the situation very closely. “It is clear that farmers alone cannot be expected to support the burden of these higher costs.” Teagasc urged 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. “Contact your advisor sooner rather than later, especially before committing to land rental or other major commitments for 2022,” farmers were told.

Meanwhile, dry weather last week was welcomed by tillage farmers.

Ciaran Collins, Teagasc Crops Specialist, said planting of winter cereals was in full flow, and there was a great opportunity to harvest maize and potatoes in good conditions.