Keeping an eye on costs is vital to running an efficient and successful business. Over the past few years, this has been a particular challenge for farmers as the war in Ukraine drove energy prices, and as a result, fertiliser prices, to unprecedented highs.
Sadly, as winter approaches, farmers will need to brace themselves for a further spike in energy costs as a series or global events are set to impact the gas and oil markets.
The only consolation is that prices are not expected to reach levels seen in summer 2022.
Turbulence in the gas market has come about due to maintenance in the Norwegian gas fields – a big supplier of gas to the UK – and the threat of strike in gas production facilities in Australia, which supplies international markets.
This has set the gas prices on an upward trajectory, resulting in a 20% increase in the spot price of urea in August this year.
As a result, nitrogen fertiliser prices rose for the first time this year in July, according to AHDB.
Sadly, the bad news for farmers doesn’t end there.
A cut in oil production in Saudi Arabia and Russia has pushed up the price of crude, which will be felt downstream by farmers in the form of red diesel price hikes.
In August, gas oil prices rose to 84ppl in response to the news, up from around 70ppl in June.
No time to panic
Ian Parker, partner and agricultural tax expert at Whitley Stimpson, said that while rising input costs are a concern, it is no time for farmers to panic.
“Although news of cost inflation will not be welcomed by farmers, the forecast energy and fertiliser rises are much more modest than those seen last year at the height of the Ukrainian war. This will be helped by the fact that Europe’s gas reserves are 90% full – they highest percentage on record for this time of year – which should mitigate further price rises over winter. Farming business will certainly have to manage their costs, but those that successfully negotiated the unprecedented prices of last year should be in a good position to do this. Anyone who is concerned about the impact of the rises should seek support now, to limit the impact they will have on the viability of their business.”
For advice on cash flow management, business planning, or any other aspect of financial management, get in touch with Ian Parker on (01295) 270200 or email email@example.com.