2022: A year of better returns, but ag-inflation casts a shadow

“The calm before the storm” is how some will view 2022, with plenty of farmers pleased with this year’s financial performance, but many now seriously worried about what the next 12 months will bring as ag-inflation starts to bite.

That is the overriding conclusion from this year’s Farmers Weekly Sentiment Survey, which seeks to “take the temperature” of the farming sector as the year-end approaches, while also gauging the mood of the industry for the year ahead.

See also: Why farmers get the smallest share and how to change it

Conducted over a two-week period at the end of October/beginning of November, we assessed the views of almost 600 farmers and farm managers, covering all parts of the country and all types of enterprise and land tenure (see “About the survey”).

Of course there are big differences between the different sectors, with arable growers generally more upbeat than their livestock-producing counterparts.

But overall, more than half of the farmers surveyed said they have had a “good” or a “great” year in 2022, compared with one-third who gave that response in 2021, and one-quarter who said so in 2020.

Another positive was that some 88% of respondents described themselves as “partly, largely or completely” in control of their businesses, compared with 75% in 2021, while those “not in control” had fallen from 25% to 12% – a healthier state of affairs.  

Buoyancy

This is a reflection of the continued buoyancy of many of the commodity markets.

Last year we reported that farm output values had firmed considerably on 2020 values, and it is clear that this momentum has been maintained, especially on the arable side.

For example, spot feed wheat ex-farm was trading at £244/t in late November – £12/t ahead of where it was a year ago, though for much of the year it has been at £50-£60/t premium (and sometimes higher still).

Milling premiums have also been pronounced, while oilseeds only recently dipped below year-ago levels, having peaked at more than £800/t just before harvest in response to dwindling supplies and the effect of the war in Ukraine.

Of course, there have been some eyewatering cost increases too.

But for arable producers in particular, many will have grown their 2022 crops using fuel and fertiliser bought well in advance, and they will be seeing good profits on this year’s harvest.

Livestock farmers have been less shielded, however, and feed and energy costs in particular have soared this year.

The summer drought, which was tolerated remarkably well by some cereal crops, had a more immediate effect on feed and forage availability, with many livestock farmers forced to break into already limited winter rations, and/or buy in expensive supplements.

Yes, market values for their outputs have remained strong, with finished steers recently quoted at 455p/kg deadweight for R4L animals – comfortably above year-ago levels.

Milk values have also climbed (to about 50p/litre), and even pig prices have been better – though still below the average cost of production. But the higher costs of feed, fuel and labour has taken the shine off for many in these sectors.

So, while 78% of “arable-only” farmers described 2022 as a “good” or “great” year, only 32% of “livestock-only” farmers did so, with half opting instead for “so-so”. 

A year of challenges

Our annual survey asks our readers what has been their single greatest challenge during the course of the year – with a number of suggested answers.

Not surprisingly, rising input costs was the number one response – cited by 43% of respondents.

This echoes the findings of the most recent ag-inflation report by the AF Group, which shows the annual rise in input costs across the board hit 34% in September – three times greater than general retail price inflation.

Seven out of nine categories of inputs monitored by the buying group saw double-digit increases, with fertilisers more than doubling in price.

This was followed by fuel and power (up 43%), and animal feed and medicine (up 36%).

Labour costs have been less prone to inflationary pressures, climbing just 6% for regular and casual staff.

But, as our survey shows, labour availability remains a major concern for some sectors, especially horticulture and dairying.

Other challenges

While input prices have dominated producer concerns in 2022, there have been plenty of other things for farmers to worry about, with extreme weather mentioned as the primary issue for 22% of those surveyed.

There is no doubt 2022 has been another extraordinary year in terms of the weather, with storms Dudley, Eunice and Franklin hitting parts of the country hard in February, bringing down trees and damaging buildings.

The summer was record-breaking too, including the hottest day on record, the hottest July on record, and the sixth-driest spell on record. Wildfires and field fires regularly hit the news

The autumn has also been unusual – unseasonably warm and wet, with 20% more rainfall than average, affecting the ability of many to get on the land for seasonal operations.

Root crop and vegetable growers have been most alarmed by the extreme weather, with 32% and 38%, respectively, mentioning it as their greatest challenge in 2022, reflecting the effect of the summer drought and restrictions on water abstraction opportunities in some parts of the country.

Will you be paid?

We asked producers for the first time how confident they were about getting paid as the economic pressures of higher costs, rising interest rates and labour shortages impact on the rest of the food supply chain.

While around half of producers said they felt “about the same” as they did 12 months ago, a significant 40% said they were either “a bit less confident” or “a lot less confident”.

Tenants were seemingly less confident than owner occupiers, as were those with larger borrowings and younger farmers. Across the sectors, arable farmers, potato growers and those keeping pigs seemed to have the greatest concerns about being paid.

Given this uncertainty, farmers would be well advised to pay close attention to who they trade with. Keep an eye out for signs of companies potentially in trouble, for example if payment times slip, or the buyer is late in submitting its annual accounts, or even if local gossip suggests there may be a problem – it is probably true.