Creating and analysing budgets is an essential part of any business - but it can be a time-consuming and difficult process.
However, arable growers can now make use of a free online tool to predict gross margins for the coming year, and benchmark themselves against their peers.
Produced by Rural Business Research - the independent group of experts behind the Farm Business Survey - the FBS Projection Calculator and benchmarking service is based on the most robust data in the industry.
"The FBS has been going since 1936, and we visit almost 2,000 farms a year to analyse their accounts," says Mark Bieri, research and communications officer at Cambridge University. "It is a time-consuming and detailed process, and gives us extremely strong historic data for the whole farming sector, not just the top 25% like many other benchmarking services."
The website enables producers to forecast gross margins and examine the impact of changing market conditions on profitability. They can also use it to see how efficient their business is compared to their peers', he adds.
"We are trying to provide a whole package for farmers. The FBS has traditionally been backward-looking, but farmers want to look forward. We have a huge wealth of knowledge, which we are trying to make as useful as possible so farmers can plan ahead."
The Projection Calculator enables farmers to compare the gross margins of winter wheat, winter and spring barley, and oilseed rape for the coming year, based either on average farm data or their own personal figures. "You can then see how sensitive your enterprise is to fluctuations in currency and input costs, for example, and plan around that."
Based on the average FBS data from the 2010 harvest year, the gross margin for winter wheat would rise from £916/ha in 2010/11 to £1,080 in 2013/14. Winter barley would increase from £656 to £763, with spring barley up from £591 to £710. Oilseed rape would rise to £831 from £773/ha. However, farmers can input their own data to create a personalised forecast, and adjust various parameters to consider different scenarios.
"The 2012 harvest year will have been expensive for many farmers, with greater fungicide applications required, plus battles with grassweeds," says Joe Scarratt from consultant Andersons. "The results for individual businesses are likely to be even more variable this year given the large variations in reported yields and the different approaches taken by growers to crop marketing."
Despite high variable costs, margins look attractive for the 2013 harvest, given high forward cereals prices, he adds. "It is essential that growers know their costs of production on a per tonne basis, as that knowledge is an important tool in the marketing of crops and management of risk."
However, more often than not farmers can make greater improvements in areas of fixed costs such as power and machinery, which is where benchmarking comes into its own. "Benchmarking is a very useful exercise - identifying areas where you can improve, looking at new ways of doing things, and asking why similar businesses have different costs to you," says Mr Scarratt.
He put Andersons' Loam Farm model figures into the benchmarking website, and found that its normal strategy of selling a lot of crops forward did not pay off in the 2010 harvest year. Total grain sales of £988/ha equated to just 84% of the FBS average. However, many input costs and overheads were lower, meaning total farm profitability before rent, interest and bank charges were largely similar, at £533/ha.
"Rent and bank charges can vary greatly from one farm to the next - when negotiating new rental agreements, it is important to remember the potential for reduced single farm payments after 2014, as well as the ability of global commodity markets to fall as quickly as they rose," says Mr Scarratt. "It is important not to blindly chase scale without considering the bottom line - if the wheat market moves down £15/t, this can wipe £124-148/ha off your gross margin.
"Replacing the lost single payment income will not be easy, but it cannot be guaranteed to come from the market given the unpredictability of commodity markets," he adds. "Growers must, therefore, review the way they operate and focus on costs. You cannot control the market, regulations or exchange rates, so focus on things that are within your control."
To access the free tool go to www.farmbusinesssurvey.co.uk/FBS-Projector
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