Merchant dilemma, including working capital challenges

We have seen huge profits reported for fertiliser companies. No doubt any risk and potential softening has or had been built into the higher prices that farmers paid. Alongside this there is a cohort of merchants that are often only trading inputs for a margin.

No doubt some merchants trading grain and fertiliser could be hit on the double this autumn as softening grain prices and fertiliser prices could leave them in financial difficulty. Grain purchased at harvest for over €300/t is potentially being sold now to other merchants dealing with end users for €270/t. That’s business.

In the same way, fertiliser markets are softening and fertiliser purchased two months ago that had to spend six to eight weeks on the sea is arriving on to the island as prices ease.

The other significant change for businesses this year is that working capital or the money tied up in financing stock purchased before it is sold increased 50% or more. This is the same for small merchants as it was for the larger co-ops.

Put an inflation increase of 4%-5% or more on top of this, availability and cost of transport challenges, and an EU policy that is removing livestock and you get a sense of some of the hard decisions some rural merchants are facing at the moment.

Often these local merchants have people employed and spin-off businesses that are dependent on the core merchant staying in business, as our Agribusiness report highlighted last week.

The level of questioning in Galway at the CAP meeting last Thursday and this week in Cavan shows the level of anxiety, and poor understanding of the changes coming for farmers starting from 1 January 2023. In some cases there are significant decisions to be made around leasing land or more importantly, the cost of leased land from next year on.

Some are just now realising eco schemes can be claimed next year on land that has no entitlements. The significance of the removal of the 20% clawback on selling entitlements for two years is also beginning to dawn on some farmers as to what might happen after 2024.

Our last information meeting is in Kerry on Wednesday 23 November. See page 31 for details.

The New Zealand auction for powders lifted over 3% this week in the face of falls since mid-September. Remember milk is in full flow in New Zealand.

Any market increase at peak milk must be recognised as a hugely positive development.

In so doing the market is suggesting that the price falls that happened over the last number of weeks were too severe.

Irish prices

Most Irish processors have met or are meeting this week and thankfully will have heard of this stabilisation and increasing commodity price before setting October milk price.

In the week when the world exceeded 8bn people, coupled with a vision that it will exceed 9bn in 15 years’ time, it seems ironic that EU policy is to reduce producing food in countries where there is a competitive advantage to do so. While realising the enormity of the challenge to change EU policy and recognising the pressures on climate, how long will it take to turn the policy ship around? This week we see alternative food and drink companies financials crashing while demand and prices for natural protein sources is rising, or in the case of beef, all the signals point to a price rise on the cards.