THE NEW single farm payment means it is now more important than ever to take account of crop profitability and to plan forward sales in advance.
With support payments decoupled, each crop will have to be considered on its own financial merits, says Alastair Dickie, director of the Home-Grown Cereals Authority. Farmers should also plan where to send their grain, and grow for local markets where possible to minimise costly haulage and problems with rejections or claims.
Before committing to buying the seed, producers should study the forward prices and draw up a detailed budget and grain marketing strategy for the season ahead. “The main thing is to have a plan at planting and a target price, but you can arrive at neither of these without a sound budget.”
Direct EU support for grain prices will almost certainly continue to weaken, says Mr Dickie, so growers should not assume that their costs of production will be met by the market.
EU intervention stocks may well rise to about 20m tonnes by July, much of which will be carried into the new season. Add in the new 2005 EU-25 crop and it seems likely that the market will be export-orientated and therefore intervention-based next year, says Mr Dickie.
Climate change is becoming another important factor as warmer, wetter weather may cause disease problems and spoil crop quality. Farmers should bear in mind their local climate when deciding whether to grow premium or feed crops, and weigh up the risks and benefits of selling milling wheat or malting barley forward on a guaranteed specification.
World grain stocks have recovered enough to provide something of a buffer against crop problems next season, but volatility will be ongoing, says Mr Dickie. Farmers should therefore consider selling some grain forward or take out price protection in the form of a minimum-priced contract or an option. “Just because the price is there today doesn”t mean it will be there at harvest.
The thing we know for certain is that prices will move.” Less than 25% of people use options, but in four of the past five years prices have been above the cost of production at some point in the season, considerably so in two of those years, he says.
By taking out an option farmers could have benefited from that and locked into a better price. “Price insurance is a way of buying hindsight and benefiting from volatility.” Producers should include the cost of an option in their budget, as they are then more likely to buy it and react if the market rises above their target price, says Mr Dickie.