Farmers could face soaring input costs after the price of crude oil jumped on the news the US would leave a nuclear deal with Iran.
Will Sommerville, AF Group head of member engagement, said the cost of crude oil rising would have a ‘big impact’ on production costs.
“Yet pressure on retailers and producers for cheaper products will mean any increase in the costs of production will not easily be passed back to the consumer. As a result, there will be an erosion of margins,” he said.
The most obvious impact would be on the cost of operating machinery.
Mr Sommerville said AF was having more discussions with members around fixing the price of fuel, either by filling their tanks now for the coming harvest or fixing a given volume over a set time period.
Capped price options also meant members could benefit from falls, but be protected from rises.
“Farm inputs such as fertilisers and pesticides are reliant on crude oil for production,” he added.
“Nitrogen, phosphorous, and potassium, as well as urea, will all increase in value as a result of crude oil’s value rising.”
AHDB analyst Rebecca Oborne said for livestock farmers the main effect would be any changes in feed prices, with many cashflows and profit margins tight due to high straw and forage costs.
“Any increase in feed prices may add to this tightening situation," she said.
This would be particularly felt in sectors with a high proportion of costs going on feed, such as the pork sector where 60 per cent of costs were on feed.
“Cost of shipping may also rise, which may impact both imports and exports," added Ms Osborne.
Mr Sommerville added there would also be an impact on non-core inputs.
“Items such as baling twine, tyres, silage wrap and certain consumables will also see prices spike, placing further pressure on producers,” he said.
“While some of these increases may not be imminent they further compound the uncertainty in the agricultural market against the backdrop of Brexit, which is set to squeeze margins still further.”