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Farmers know this pattern all too well.  In 2022, when Russia launched the invasion of Ukraine, markets were shaken within days.  Energy and fertiliser prices climbed rapidly, pushing up food production costs sharply.

Conflict in the Middle East has now caused a standstill in shipping through the Strait of Hormuz which is a key route for global energy and commodity shipments, pushing oil markets higher and increasing freight costs.  As a result, farmers are already feeling the effects in the global supply chains, driving up the cost and scarcity of essential farming inputs like fuel and fertiliser.

Unfortunately, fuel is an essential cost that farmers have little flexibility to reduce.  Tractors, and equipment depend on diesel to run and when fuel prices rise, almost every aspect of farming becomes more expensive.

Fertiliser also remains one of the biggest expenses for many farms. Because natural gas is essential to its production, fertiliser prices tend to move in line with global energy markets.  When energy costs rise, fertiliser prices typically follow.  Recent increases have led farmers to think more carefully about how much they apply and when, with some already adjusting application rates or timing to keep costs under control.

While beef prices remain high, and after a period where dairy farmers benefited from stronger milk prices, some dairy farmers have seen a significant drop in the price they receive for their milk whilst their costs have risen rapidly.  The combination of higher running costs and lower milk prices means many farms are entering a period where cashflow may be tighter than it has been in recent years.

To stay ahead of any pressure points, it is essential to prepare cash flow forecasts for the year ahead.  Cash is essential for farms to operate and meet monthly running costs.  Farming businesses often experience significant seasonal swings in both income and expenditure.  Costs such as fertiliser, feed, machinery and contractor bills can fall within a short windows.  Preparing a cash flow forecast can help identify whether action is needed to ensure sufficient funds are available to cover higher input costs, but can also help plan for times when higher profits may be achieved, and in which case tax liabilities may also rise.

Start by clearly defining your goals and understanding why you are reviewing your cash flow.  Whether the aim is to manage short term pressures, plan for future investment, or strengthen the overall financial position of the business, having a clear objective helps ensure the review is both focused and meaningful.

Working closely with our specialist agricultural accounts team to review your accounts year on year, alongside regular cash flow forecasting, can provide valuable insight into how the business is performing.  This process also creates an opportunity to assess all expenditure carefully, ensuring that each cost is both necessary and delivering good value for money.  In some cases, it may be sensible to postpone major investments until market conditions improve and the business is in a stronger position to proceed.

A well prepared cash flow budget can also highlight periods where additional borrowing may be required to bridge short term gaps until income improves.  Identifying these points early allows farmers to plan ahead, make informed decisions, avoid unnecessary pressure, and maintain the financial resilience of the business.

The outlook for the remainder of the year suggests that conditions are likely to stay challenging.  Careful planning will be important.  Monitoring costs, keeping a close eye on cashflow and speaking early with advisers can help you manage through more difficult periods.  If you require assistance to help you navigate the months ahead, please get in touch with us on 01228 711888 or 01387 270340.

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