I drove over to Cheffin's machinery sale yard near Ely the other evening to chair a meeting hosted by the auctioneers in conjunction with Whiting & Partners, accountants and Clydesdale Bank. The topic for discussion was "Fenland Farming - What the Future Holds".
David Bolton of Cheffins reminded the audience of the huge changes in commodity prices and gross margins since 1995. That year, he said, feed wheat averaged £120/t and with a 3.75t/ac yield left a gross margin of £451/ac. This year he predicted a price of £92/t (a bit optimistic I thought), a yield of 3.85t/ac and a £248/ac gross margin. In other words a gross margin drop of over £200.
He had done similar calculations for sugar beet. In 1995 the price was 40.34/t, average yields were 19.3t/ac and the gross margin was £493/ac. Twelve years later he expects the 2007 price to be £20.28/t, the yield (because of varietal improvements) to be 28t/ac and the gross margin £299/ac. He had omitted Single Farm Payments and Entry Level Scheme from all the 2007 figures because, as he said, they are now decoupled from production.
Despite the drastic reductions in gross margin, however, he thought the future looked bright. He was convinced the demand for cereals, rape and sugar for bio fuels would push up ex farm prices and that profitablity would improve. Although he warned of price volatility and increases in costs. Farmers, he said, would need to be alert to the possibility of exotic crops as the climate warmed and to any other opportunities that presented themselves.
James Cater of Whitings concentrated on capital tax saving possibilities while Penny Lord of Clydesdale Bank advocated better management of capital and pointed to opportunities for gains if farmers took their SFP's in Euro's.
All very encouraging, but as I suggested, very little of it has happened yet. Most of the possibilities discussed were speculative, so I urged caution. I also pointed out that since Total Income from Farming was still less than total subsidies received by farmers there was a lot to do to make optimism a reality. Farmers should not expect profits would recover without effort from themselves. I also detected something of a division between owner occupiers and tenants. As usual, tenants have less opportunities and less flexibility than owners.
But I am both an owner and a tenant so I tend to see both sides. And, of course, I am a professional pessimist.