What a difference a year makes! There was much uncertainty in the agri commodity markets last year as the world had entered lockdown. Now we are emerging with record high beef (+25%) and lamb prices (+33%), raising dairy (+10%) and arable crop prices (+30%). Negative interest rates have been talked about much in the last 12 months but note there is talk of rising interest rates in the next 1-2 years.

This news of rising agricultural commodity sale prices is welcome and will help increase bottom line profits only if you are running an efficient business. If your business uses a lot of inputs such as those listed in the table above, a lot of the extra potential profit will be gobbled up by rising costs. E.g. if it takes 3t vs 2t/cow of purchased feed to produce 8000 litres of milk per cow, the increased feed costs of say £40/t equates to an extra 1.5ppl cost for the less efficient herd to an increase of 1ppl for the more efficient one.

As a country, the UK is a net importer of goods and our exchange rate with our main trading partners, the US and Europe, will have a big impact on the price of these imported goods. In agriculture, we are also exposed to the price of these goods, especially fertiliser, feeds, machinery and fuel. Fortunately sterling has appreciated vs the dollar in the last 12 months, reducing the cost of importing Oil, Fertiliser and feeds by 12%. If this rate hadn’t moved in our favour, all the above price increases would have increased by a further 12%!!!

As the four above named farm inputs can make up 50% + of agricultural costs, farm expenditure will increase per unit purchased. This is outside your control.

It is all the more reason that as agri-sale prices increase, you keep on controlling costs by improving efficiency to wasting less, getting more from what you have through better day to day management.

A good practical example is a beef farmer on 75ha who purchased a GPS for his tractor with the aid of a grant saved 6T of fertiliser last year by using a GPS system on his tractor to eliminate overlap and he would have reduced time and fuel also. The savings paid for the investment in one year!

Beware as inflation increases in the general economy. Rising steel and building input costs will add to farm capital project and machinery investment costs as the general economy begins emerging from lockdown. How long will it be before interest rates begin to increase?

Contact Gerard at gerardfinnan@fcgagric.com or your local FCG office, to see how we can make your farming business more efficient and thus reduce your exposure to agri-inflation.