Michael Hennessy: Tips for Avoiding Cash Flow Problems Caused by High Fertilizer Costs
Most things turned out as planned in 2021 for most plow growers, but high fertilizer prices are casting a shadow over the 2022 season.
t is important to map the fertilizers that will be used this year. All farmers need to think about how these fertilizers can be acquired and delivered to the farm on time in order to get the most efficiency from them.
The additional costs generated are of great concern. It will be difficult for many farmers to ensure that you have the cash available to purchase fertilizer so that it is on the farm when it is needed.
Farmers who rely heavily on market credit are the most at risk.
These farmers should ask a number of questions: Can I get the fertilizer supply I want, when I want it? Can I get enough financing to pay for it?
Will I get the understanding from other creditors because my cash flow will be very tight in 2022?
Planning is the key.
The first action should be to create a nutrient management plan for all crops grown in 2022.
Then complete a budget for 2022 and describe as much as possible the critical expenses: agricultural inputs, including fertilizers; machine reimbursements and repairs; and household and living expenses.
You may need help with this: ask any good advisor.
Once that’s done, you’re in a good position to talk to the people who give you credit throughout the year.
Talk to your traders to make sure you understand the availability of fertilizer, especially early in the season.
Establish the terms the merchant will expect and the additional amount you will need to pay this year on top of what you would normally pay for an extended credit limit.
It will be difficult if the merchant wants payment in advance. You should therefore plan to have more money to grow your crops earlier in the season, compared to other years, with a proportion of your fertilizer prepaid.
Talk with your bank to determine the amount of a loan facility that can be granted to you, throughout the season. Credit from the bank will be at a lower interest rate than you get from the merchant.
The enormous pressure on the cash flow of many farmers can impact other creditors.
Again, communication with the people who expect money from you is essential. This includes landowners who may very well research part of the lease of the land in advance.
And the planning is going both ways: given the increased risk of growing crops this year, smart farmers will look to forward some of their grain and take advantage of historically high prices this year.
Selling grain forward and buying fertilizer at the same time makes sense from a risk reduction perspective.
These two critical parts in growing crops are the most important parts in determining whether you are making a margin or not.
That’s a message you’ll hear a lot from Teagasc in 2022: sit back and spend time planning and organizing your inputs (and sales) at the start of the season and don’t leave it to the last minute.
Michael Hennessy is Cultural Knowledge Manager at Teagasc, Oak Park