Rising fuel and fertiliser prices combined with additional feed costs as a result of the harsh winter mean most farming businesses are under financial pressure.

Although commodity prices are currently at a more satisfactory level, an approximate 20% rise in fixed costs, late SPS payments and changes to Natural England payment dates mean farmers are stretched to the limit and need to monitor their cashflows very carefully, says the Strutt & Parker Farming Department.

Farming expert Ali Gray, based in Strutt & Parker's Morpeth office, said: "Many farmers are feeling the pinch at the moment and need to be very rigorous in planning and monitoring their cashflows over the coming months."

He said: "Commodity prices have been better this year but generally costs have gone up between 15% and 20%.

"Some early lamb sales have commenced, but at the current time of year before the grain is harvested, there are few sales from May to August and farmers still face significant ongoing costs to their businesses in terms of fertiliser, fuel, machinery repairs as well as rent for tenant farmers. It will be even tougher this year because of the knock-on effect of the harsh winter and the subsequent extra forage and feed costs many incurred.

"Additionally, following an EU audit, Natural England are changing the timing of their payments to two annual payments sometime between January and March and sometime between October and December. On top of that, some farmers who were undergoing "Entitlement Correction" did not receive their SPS 2010 payments until last month which will have caused havoc with their cashflows."

Mr Gray said: "We suggest farmers monitor their cashflows carefully and regularly. A cashflow budget prepared at the start of the year is important but this needs to be carefully monitored on a monthly basis to ensure sufficient facilities are in place during the months ahead in order to manage the business efficiently. Rushed or forced sales of grain and lamb simply to keep the bank balance in check may not always be the best sale or the best option but sometimes the only option if cashflow planning is left too late. In a year like this we would urge farmers to get a good grasp of their cash position and likely requirements going forward.

"Farmers should not be adverse to working with their banks and get interim extensions if that's what is needed. Whilst most lenders will be sympathetic to their needs, more often than not they will need to see accurate and detailed budgets and cashflows to justify the need. In our experience lenders do understand the predicament that all businesses are facing in terms of the rising costs.

Whilst the high commodity prices are generating all the headlines, the costs incurred within all farming businesses continue to rise dramatically. This in turn increases the financial risk to the individual business. Detailed financial plans are essential to a modern farming business. This not only enables the appropriate level of working capital to be sourced but also allows the business to manage the financial risk successfully enabling decent profits to be retained.