Threat of 75p red diesel price will hit cashflows this harvest

Farmers and contractors need to question every machinery pass as diesel costs are expected to climb even further, according to research by accountant Grant Thornton.

Red diesel is now costing farmers up to 59p/litre, compared with 36p/litre just one year ago.

London’s Brent Crude oil market has continued to climb to just under $120/barrel after breaching the £100/barrel mark in early March.

Grant Thornton’s Gary Markham said new figures from the AtlasFram Group – the merger between Atlas Agriculture and Framlingham Farmers – were forecasting prices of 75p/litre for the 2009 harvest.

“From 2007-2008, we’ve seen a 66% increase in fuel costs and this now looks likely to rise a further 29% in 2008-2009,” said Mr Markham.

Higher fees for higher fuel costs

While contractors would have to convince their customers to accept higher fees to account for higher fuel costs, it was essential that arable farmers began to budget now for peak fuel useage during harvest and autumn cultivations, he said.

“Arable farmers in the top 25% of Grant Thornton’s surveyed farms were appending £47/ha on fuel in the 2006 and 2007 harvest years. The crop in the ground now will have fuel costs of £74/ha – a 57% increase. And diesel prices of 75p/litre for the 2009 harvest would see fuel costs rise to £96/ha. So from 2007-2009 prices have more than doubled – 105%.”

When added to price increases in other variable costs, this would have a huge impact on margins, said Mr Markham. “But cashflows too will be affected. This harves’s fuel needs to be funded now, in the 2008 calandar year and until the 2008 crop is sold. Inputs for 2009 and the fuel to put the crop in the ground will have to be funded now.”

Less ploughing

This would severely test farm businesses’ working capital and farmers should consider talking to banks now, Mr Markham said. “I expect we’ll see a lot less ploughing this autumn. With diesel prices where they are now, every extra machinery pass that can be saved is meaningful.”

Nick Adamson of Oxfordshire fuel supplier Ackerman & Niece, said farmers were only buying small quantities of fuel on the spot market. “A few are thinking ahead of harvest – there are rumours that red diesel could be as much as 70p/litre by the autumn. But the market is being talked up.”

Norfolk contractor Steven Suggit said prices had been rising rapidly. “You really have to be on your toes. We have six machines on the go at the moment. Last week we had two deliveries of fuel and there was 6p/litre between the two – only four days apart. It’s quite worrying.

“It’s difficult to forecast baling prices for people. I’ve started quoting customers based on 65p/litre for baling straw. “Mowing prices will be £1/acre more than last year There are rumours the price could be £1/litre by Christmas.”

Mr Suggit said fuel was currently costing his business £5-7000 a month but over harvest he expected this to double.

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