Cereals 2010 has every prospect of being a huge success in early June and HSBC Agriculture is, for the seventh year running, delighted to be the event’s principal sponsor.
This is my first year at the event for seven years after returning from HSBC’s commercial team in the north east to lead its long-standing agriculture business. I am sure I will see some huge changes and genuine progress, just as I have done in the few weeks I have been in the role.
In those seven years farming incomes in the UK have risen from low levels at the turn of the decade and we have become accustomed to the single farm payment since its inception in 2003. Both are obviously linked and I cannot help but think of what the post-2013 economic environment may throw at UK agriculture.
At this time of year, the final part of the 2009 crop is being marketed. This naturally gives us the final position regarding price and tonnage and, by inference, an assessment about a grower’s individual returns against his cost base.
Ultimately, as a whole sector, much hinges on the proportion of grain sold into the world markets and is subjected to those vagaries. The very best growers will return a margin before including their own SFP receipts; but for most the SFP will be necessary to declare a bottom-line profit. Currently a breakeven cost of production of £100/t would be a sensible target for most cereal-orientated businesses.
With these factors in mind, the adage of knowing and controlling costs of production becomes paramount to every business. Low costs are naturally preferable and, as long as output is acceptable, then the highest margins are achieved. In times of volatile prices, units run along these lines tend to lose least when prices fall below those costs of production.
High costs demand a higher output and may demand a closer relationship upstream in the market to command the required premiums. One highly successful operator reminded me the other day: “Costs remain very much within the control of the business and, in particular, its management, but the link to technical output and expert marketing must not be underestimated.”
Excellent technical output at efficient cost levels has already become paramount across the sector. This is a key traditional facet of Cereals events and 2010 will definitely be no different. Husbandry methods and the latest technology will be showcased and will rightly come under the spotlight for each grower to rigorously assess for the conditions on their unit. The agricultural industry is brilliant at this and long may that continue.
Having said all that, I cannot help think that some wise words from an American wheat grower, whom I heard speak back in the early 1990s, are beginning to ring very true. When he had explained his business and his typical outputs and returns, someone asked him what his most important activity was. He replied he was spending much more time on marketing his crop and managing the plethora of support mechanisms to maximise his financial returns than the physical production of that crop. He thought these two actions to be the most important; they were certainly his most challenging. In the UK cereals sector, I sense that this is this definitely seems to be true now.
One of the biggest shifts that I have witnessed on my return is an increasing willingness to let specialists market the crop for the best return over that season, while also seeing a greater understanding by those businesses to manage some of the risk which exists around SFP.
The HSBC Agriculture team will be on hand at Cereals to play their full part in helping individual businesses work out what is the best way forward for each arable enterprise. It is no surprise to me that some of our biggest customers are identifying the difference between grain marketing in its strictest sense and undertaking grain selling – strategy and planning being the real difference. What is your strategy for 2010, and 2011 crops?
HSBC Agriculture has an unrivalled reputation in the sector, built up since its inception in 1989. The opportunity for agriculture to move forward is one in which my team wants to play its full and very proactive part.
I look forward to meeting you at Cereals 2010.