Archive: Overview of farm input costs

Published 11 December 14

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An overview of recent data shows a general easing in costs over the past year of key variable inputs on dairy farms. The exceptions are primarily related to overhead costs such as those associated with vet services, electricity, building costs and maintenance.

The effect of declining input prices on individual businesses will depend on a business’s reliance on certain inputs and the timing of purchase. Due to market volatility and the global effect on prices for many products, the best time to purchase on cost may vary each year and farmers’ ability to capitalise on this will depend on whether they have the flexibility to purchase at different times of the year. This could be impacted by timing of demand for the product, input deterioration, storage availability and capacity.

Cost category

 

Nov-14

Nov-13

%   Change

Feed

 

 

 

 

     Straights - Feed wheat

£/tonne

126.50

171.00

-26.0

     Compounds – High energy dairy

£/tonne

233.50

255.50

-8.6

Fertiliser

 

 

 

 

     Ammonium Nitrate

£/tonne

264.50

253.50

+4.3

     Granular Urea

£/tonne

288.00

280.00

+2.9

Wholesale electricity

£/MWh

49.62

53.50

-7.3

Brent crude oil

US$/barrel

79.19

107.96

-26.7

Red diesel

pence/litre

59.28

67.60

-12.3

Source:  HGCA, FarmBrief, GrowSave, Defra

When looking in more detail, Defra figures indicate straight feed cereal prices, on average, have fallen by 26% but, given the other ingredients and cost of manufacture, compound prices only fell between eight and ten per cent.

Cost of forage production will have been affected by the lower cost of compound fertiliser (blended 20:10:10), which for spring purchases was nine per cent lower than the previous year, and the higher cost of herbicides. Many contractor forage charges were cost neutral although the cost of bale wrapping increased by nearly ten per cent. The cost per tonne of Dry Matter will depend on the quality of the forage. Overall the weather has been good for grass growth, but periods of rain impacted on harvesting silage and hay at optimum quality levels and some farmers have been disappointed with their silage analysis, resulting in the need for additional purchased feeds to achieve satisfactory rations.

Looking at more recent fertiliser spot prices, purchases in July 2014 would have been cheaper than the same month in 2013 with Ammonium Nitrate 6.3% and Granular Urea 11.5% cheaper. Delaying purchase until November this year would have resulted in an increased cost compared to November 2013 with Ammonium Nitrate 4.3% and Granular Urea 2.9% higher.

Wholesale electricity prices have fallen on average but Defra figures indicate an overall annual increase to the consumer. November 2014 wholesale prices would indicate a fall of 7.3% compared to November 2013, but for those businesses with a continual consistent demand an annual average comparison is more appropriate and indicates a price decrease of 4.6%. The ability to benefit from these prices depends on the quantity of electricity consumed, how often or whether competitive business prices are able to be negotiated, and what percentage of the total bill is represented by any standing charge.

Whilst the average price of Brent Crude Oil (in US$) this November was 26.7% lower compared to the same period last year, the annual average indicates only a drop of 4.6%. However, after manufacture costs and the favourable tax position for red diesel, November 2014 red diesel prices are 12.3% lower than for the same month in 2013. The average annual price for red diesel indicates a fall of 6.7%.