Farm margins remain under pressure as inflation continues

With key agricultural inputs maintaining a higher rate of inflation than outputs and the Bank of England’s increase in base rates to 5.25%, many farmers face increased costs of borrowing.

According to a report from AHDB, fertiliser price inflation has seen the largest decline, falling 53% in the first seven months of the year (Dec 22 vs Jul 23) and down 56% compared to the inflationary peak in September last year.

However, between June and July, there has been a slight uptick in fertiliser price inflation. GB fertiliser prices rose in August, with UK produced AN up £17/t compared to the previous month. Some volatility is expected to continue in fertiliser price inflation as market pricing closely follows the movements in the natural gas markets.

Energy and fuel price inflation have eased at a more gradual rate than fertilisers, down 20% from the start of the year (Dec 22 vs Jul 23) and a 23% drop compared to November 2022 when inflation peaked. Again, some volatility is anticipated in the coming months when cooler weather increases demand.

Adding to the volatility is the current pressure seen on oil markets and prices, which energy and fuel closely follow. In September, UK fuel prices increased again with red diesel prices increasing 8% month-on-month.

Inflation for compound feeds has seen more marginal downward movement, down just 7% from the peak in October last year. Wheat futures markets are currently at a similar price point to the beginning of last year, before the Russian invasion of Ukraine.

Southern hemisphere crops are currently in focus, for both short and long-term price direction. However, competitive Black Sea supplies continue to cap gains and are expected to fulfil global demand. Ample US, EU, and South American maize supplies are also expected to weigh on grain markets moving forward according to the report.