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15 Nov, 2021

Surging input costs to slash farm profit

Profit margins across all the main farming enterprises are likely to suffer “massive hits” next year compared to 2021, explains our Head of Tax Declan McEvoy. This article was originally seen in the Irish Farmers Journal on November 13th.

Profits on dairy and beef farms will halve in 2022 compared to this year, while returns on tillage farms could drop by as much as 70%. Up to 70% drop in returns on tillage farms forecast for 2022. €50,000 hike in costs, due to increased spending on feed and fertiliser.

The stark predictions are included in ifac analyses of input costs and commodity prices next year. These show that the unprecedented hike in fertiliser, feed and diesel will completely erode the 2021 lift in milk, beef and grain prices.

“2021 has been an absolutely super year for farmers but inflation on feed and fertiliser will really start to bite next spring,” McEvoy said. The tighter margins in2022 willbe compounded by farmers facing higher tax bills as a consequence of this year’s bumper returns.

While McEvoy maintained that dairy farmers were best placed to handle the likely income pressures next year, he warned that a sharp drop in grain prices could lead to “carnage in the tillage sector”.

Ifac’s forecasts found that the cash surplus on a 148-cow spring-calving operation could fall to €84,000 in 2022, back from €155,000 this year. This equates to a reduction in the cash surplus of€71,000,0146%. The forecast collapse in profits is attributed primarily to a €50,000 hike in costs, due to increased spending on feed and fertiliser in the main.

Increased costs will also hit dry stock margins. Basing its figures on a 64ha holding which carries 40 sticklers and 110 ewes, ifac estimates that additional spending on inputs will result in the farm’s cash surplus falling from around €17,000 in 2021 to just over €7,000 next year.

Tillage margins could be hardest hit in 2022, McEvoy predicted. “Next year could take the good out of this year for tillage farmers, unless [grain] prices increase again,” he said. Using a I22ha tillage farm rotating spring and winter crops for the comparison on profit levels, the ifac assessment forecasts that the cash surplus from suchas operation is likely to be €27,000 in 2022 - this is compared to almost €87,000 in 2021. The margin for this farm in 2020 was €36,000.