September 2009 Archives

By Paul Spackman

It's official! The 2009 single farm payment is going to be worth 15% more than last year, at least for those who opted to receive it in sterling.

As Mr Clarke explained in his blog posting last week, the EU Commission fixes the rate at which the SFP is converted from euros into national currencies using the European Central Bank's closing rate on 30 September.

Today that rate finished the day at €1 = £0.90930. Compare that with the rate of €1 = 79p last year and around 68-69p in the years before that, there's a clear bonus for farmers this autumn.

But while some in the national media have quickly jumped on headlines such as "windfall for farmers", others closer to the industry have been understandably more reserved...

When it comes to holiday reading, the John Nix Farm Management Pocketbook is never going to make to the list of "must be seen with" books to take to the airport.

No, holidays are about getting away from it all, hence my decision to pack The Strange Last Voyage of Donald Crowhurst and the latest Sebastian Faulks, Devil May Care, when throwing my things together in haste this morning. (Yes, I'm off for some late summer sun in Greece.)

But that's not to suggest that the Nix Pocketbook is not a cracking good read. The new 40th anniversary edition shows that feed wheat variable costs have fallen by a third for the forthcoming 2010 harvest since the expensive 2008/09 growing year - down from £62/t to £42/t.

Who knows what the price of wheat will be in 12 months' time, but the £20 drop in variable costs at least more than compensates for the £10/t drop in wheat prices compared with this time last year. Good news for arable farmers.

Dairy returns are also seen rising in 2010. "Despite a lower milk price, higher cull and calf prices, coupled with lower costs of concentrate feed, fuel and fertiliser will push the gross margin per forage hectare up slightly," it suggests....

It's that time of year again when many in the farming industry take an even closer interest in the value of sterling and what is going on in the international currency markets.

Of course such things are always important and the weakness of sterling has already served the farming industry pretty well over the past 12 months.

For example, where it not for the 15% drop year-on-year, dairy farmers would be getting a milk price nearer to 18p/litre than the current 22p/litre, and arable producers would be getting just £70/t for their wheat.

But the value of sterling is even more important now as in just over a week, at close of play on 30 September, the EU commission will fix the rate at which this year's single farm payments will be converted from euros into national currencies.

The use of this seemingly arbitrary date has often been criticised in the past for making the whole process something of a lottery. But, if that is the case, then at least UK farmers seem to have hit the jackpot for a second year in a row......

A quick glance at the graphs' page in this week's Farmers Weekly just goes to show that the old adage "up horn, down corn" is as relevant today as it has ever been.

On the left hand side we have the three graphs for finished cattle, finished lambs and pigs, (OK, I know pigs don't have horns, but they do have four legs and a tail). In each case, the red line rests comfortably above the blue line, indicating this year's prices exceed last year's.

And on the right hand side, however, we have the three graphs for feed wheat, oilseed rape and potatoes, (and yes, I realise that only one of these is a corn), where the reverse it true.

In general terms, the "up horn, down corn" relationship reflects the fact that, when grain prices are low, the cost of feeding cattle and sheep is also less, leading to better margins. This is pretty much where we are now.

In time, so the theory goes, more farmers will move into livestock production, supply will go up and prices will fall. At the same time, with more animals to feed, demand for cereals will increase, driving up the price of corn for arable farmers....

It is said that a picture tells a thousand words - so rather than waffling on in my usual style about the causes and effects of this week's milk strikes in Europe, here is a regional round-up in picture form:

The pictures were taken in Belgium, Austria, Germany, The Netherlands, Luxembourg, Itlay, Switzerland and France (but not by me!).

* What do you think of the EU miklk strike? Please comment below. And why not sign up for regular email alerts?

Dairy farmers have had a tough 12 months, with prices on the slide, the collapse of Dairy Farmers of Britain, a worsening TB situation, poor forage in some parts of the country and the looming threat of NVZs. Not surprising, then, that farmers continue to quit the industry at an alarming rate.

But the feeling at this week's Dairy Event and Livestock Show at Stoneleigh was that the worst could now be over.

No one was talking of an immediate or substantial market turnaround. But there was a definite feeling among milk buyers and processors that the recent improvements in world market prices for things like butter, powder and cheese were more than another false dawn.

This tentative optimism is also apparent in our own survey of farmer attitudes to their businesses. That reveals that 55% of dairy farmers feel "fairly" or "very" positive about their businesses, with many of them still enjoying farming and the vast majority expecting to still be milking cows in five-to-ten years' time.

The new joint DairyCo/Dairy UK report on investment prospects also paints a more upbeat picture, insisting that dairy farmers have a future, especially those supplying successful and competitive processors. But even those at the commodity end could prosper, so long as they get their costs under control and can cope with increasing volatility.....

So Mariann Fischer Boel has finally called it a day.

News that she will not seek another term in office is not altogether surprising, though recent speculation in Brussels had suggested that she could be persuaded to stay on.

But at the age of 66, and with a number of notable achievements as agriculture commissioner under her belt, it seems that retirement was the more attractive option - and who can blame her.

So what is the assessment of her five years in the Brussels hotseat? 

She certainly had a difficult act to follow, stepping into the shoes of Austrian commissioner Franz Fischler, who had totally dominated the Brussels agriculture scene for ten long years.

His strength of personality and record of achievement (Agenda 2000 and the 2003 Fischler reforms) set the bar very high indeed.

And Mrs Fischer Boel certainly had a faltering start...

Are government agencies exaggerating the size of this year's global grain crop and are multinationals influencing the figures in order to move the market one way, then the other?

It's a hell of a suggestion, but one that was put to me this week in the form of an email from a Herefordshire farmer, disillusioned with the grain market and harbouring a deep-rooted scepticism.

In a slightly abridged version, his email read as follows: "I've been speaking to a combine driver who has just returned from Oklahoma. He reported dire yields across thousands of acres due to a four-day frost earlier in the year. He said that thousands of acres had not been cut at all because there was not a single grain in them. Yields were at best 25% of last year. I gather that all farmers there have frost insurance, but I wondered how this had not been reported elsewhere.

"I have long speculated about Cargill and others manipulating figures to their own ends. Given the effect that the "discovery" of extra wheat area in the USA had on world prices a couple of months ago, presumably the reverse could be true. The suspicion that the USDA is supplied its information by Cargill et al only adds to the mistrust."

Of course these claims got my journalistic nose twitching, so I contacted two respected analysts I know - Terry Francl at the American Farm Bureau and Dan Basse of Chicago-based AgResource......

At face value, a 33% drop in anything looks like a bit of a slump, or in the case of the AEA's monthly tractor sales data, a "depression", given that this index is so often referred to as the barometer of the UK farming industry.

Certainly, the drop in the number of tractor registrations in the past few months has been considerable, with the August figure coming on top of a 27% year-on-year downturn in July, 6% in June and 16% in May.

But to call it a slump or depression would be an overstatement - a "correction" is probably the better phraseology.

Looked at over the longer term, this year's tractor registrations are still pretty buoyant. In the first eight months of the year, UK farmers have purchased 11,889 tractors over 50hp. That is more than they bought in the whole of 2000 and 2001.

OK, by year-end total tractor sales are likely to be well down on last year's 17,000-plus. But even if they reach 14,500, as seems likely, it will still have been one of the best years for the past decade....

Long on rhetoric, short on action has to be the assessment of this week's farm council meeting in Brussels, where 27 ministers and their aides discussed the dairy crisis for over three hours and came up with nothing.

That's not strictly true. A number of ministers did sign up to a Franco-German communiqué demanding further action from the commission.

In particular, six member states, (France, Germany, Hungary, Austria, Portugal and Slovakia), called for a quota freeze until markets improve and urged the commission to impose a "stricter milk quota regime" by which any producer going over quota would be subject to a superlevy.

A more weighty 13 member states, (Belgium, Bulgaria, Estonia, Ireland, Latvia, Lithuania, Luxembourg, Hungary, Austria, Portugal, Romania, Slovenia, Slovakia and Finland), also supported the Franco-German call for an increase in intervention prices and export refunds.

But the EU commission poured cold water on most of these ideas and no decisions were taken. Instead, the council's Special Committee on Agriculture was dispatched to hold more "technical discussions", pending a further debate at the October council....

In less than a fortnight, British Sugar will open its factory gates and start the job of processing the 2009 beet crop.

It stands to make a lot of money from the activity, with international sugar prices at a 30-year high, the weak pound protecting the sector from imports and the value of bioethanol also on the way up.

Yet the task of agreeing terms with growers for the 2010 crop still hangs in the balance, with DEFRA poised to come in as arbitrator if talks collapse this week.

The two sides are tantalisingly close, with the NFU indicating that it will accept last year's price of £27/t as a "bridging" value for 2010, (though it still wants £34.50/t as the long-term price to give growers "the security to commit to the crop for future years").

In contrast, British Sugar says £26/t is the most it can pay and growers can either "take it or leave it". The company claimed at the NFU meeting last week that, if it is forced to go up to £27/t, then the 800,000t of "temporary tonnage", linked to the processing of bio-ethanol at Wissington, may be withdrawn.

That all seems highly questionable...

There has been a recent discussion in the office about whether our harvest reports have been getting too gloomy.

Certainly they have carried some pretty depressing headlines: "Sodden in Cornwall", "Battered in Hereford", "Saturated in Fyfe" have all been used to convey a picture of beleaguered cereal growers battling with the elements to get the corn in the barn.

And, judging by some of the recent photographs that have been sent into the office by FWi users, these headlines do present an accurate, if soggy, picture.

But it's not all bad news. The HGCA's latest harvest report confirms that about 90% of the UK's wheat crop is now completed, with yields just shy of 8t/ha and grain quality generally good. Not everyone, it seems, has had it so tough.

The big question now is what the crop will be worth to farmers - and here the prognosis is little better than the weather. Ex-farm values of UK wheat are stuck at around £88/t, while barley has slipped again to just £73/t....

Speculation continues to mount in Brussels over whether current agriculture commissioner Mariann Fisher Boel will call it a day in the next few weeks, or put herself forward for another five-year term.

Before the summer recess, the balance of opinion was that she would go. At 66-years of age, she's no spring chicken and the attractions of retirement were obvious.

But that now seems less clear cut. Certainly the current EU Commission president Jose Manuel Barroso would like her to stay, having witnessed her competence as a negotiator and reformer over the past five years.

And Danish prime minister Anders Rasmussen would like her to stay, if only to give the Danes a more prominent role in Brussels policy-making than might otherwise be the case.

Addressing the European parliament's agriculture committee on Tuesday she was giving little away. Other than saying that she was "looking forward to getting to know the new faces better", she did not mention her personal plans at all.

But she will have to declare her hand soon, and the decision she makes could have a significant impact on the future direction of the CAP.....