Virtual farm barn and cows

Better-than-expected yields are set to produce a profit of £289/ha for the Virtual Farm from the 2015 harvest.

This is an improvement on budget but actual yields and prices illustrate very clearly the volatility in combinable crop production.

An average yield increase across first and second wheats crops of 10-25% was the main contributor to a 17% rise in the total gross margin to £697/ha.

Only spring beans saw a fall in gross margin compared with budget, because of low prices.

See also: Virtual Farm: Rent hike and price outlook strain budget

The yield improvement has helped to boost margin by 50% on January’s budget levels, with oilseed rape showing a much stronger gross margin compared with the early budget (see table 3 below).

With prices for the unsold portion of the harvest mostly way below original budget levels, cashflow is being monitored more closely than ever.

Virtual Farm facts

  • The Virtual Farm is a top 25% arable producer, an efficient, well-run business but facing depreciation and investment issues
  • Created by Savills Agribusiness and Farmers Weekly to identify challenges for similar farms and find strategies to cope with them
  • Farm model is a hypothetical family partnership
  • Budgeted figures based on Savills’ client base, model allows scenarios to be tested
  • Three-quarters owner-occupied, one-quarter FBT
  • Traditional and modern farm buildings
  • Cultivations and kit centred on non-inversion tillage system
  • Core borrowing on a long-term loan, plus overdraft
  • Selling and delivery takes place in four roughly equal amounts between September and July to meet cashflow requirements
  • No renewable energy on farm yet, but it is under consideration

“It is a huge concern at the moment when the basic payment will be received,” says Richard Morley, agribusiness consultant with Savills.

“Our current estimate is March 2016. This will be monitored closely and crop marketing may need to be adjusted depending on cashflow.

“Additionally we have income of £30/ha from a 2011 ELS agreement. These payments have also been delayed until the end of the year, again hitting cashflow. The ELS scheme runs out in mid-2016.”

Harvest 2015 costs of production included grassweed control costs slightly higher than budgeted, with strong action being taken where possible.

Diesel use is estimated to have been 10-15% higher than the 130 litres/ha budgeted because of extra drying costs. The farm fixed its fuel price at 49p/litre.

“Although the price has since fallen to 41p/litre, we like the security that fixing provides and will be looking over the next month to fix for 2016 before the winter – current prices offered for fixing are around the 48-49p/litre mark for a one-year deal.”

This figure excludes the £100,000 spent on drainage improvements this year – for accounting purposes this will be shown as a one-off repair cost this year.

Crop sales

Ten percent of the budgeted yield of wheat was sold last autumn at £140/t for April 2016 and this was hoped to be a good marker for the crop.

“However as it turned out it was our second highest sale so the only way we were able to match the 2014 return was by the crops delivering excellent yields.

“The 13.33% increase in yield over budget means we have committed only 66% of the wheat crop, rather than the 75% in the plan.

“The remaining 34% is in the budget at a revised value of £117/t.

The Virtual Farm is in the fortunate position of having drying and storage capacity to allow us to make marketing decisions to fit the business and cashflow requirements, rather than having our hand forced on sales.

Virtual Farm storage

“However local commercial merchant storage can provide flexibility – for example, on some farms this season we chose to store oilseed rape with Frontier at £10.50/t.

Virtual Farm in numbers

830ha arable farm model

  • 810ha cropping
  • 16ha in woodland parcels
  • 4ha hardstanding and tracks

Five-year average yields

  • First wheat 8.7t/ha
  • Winter oilseed rape 3.7t/ha

Cropping

  • Feed wheat
  • Winter oilseed rape
  • Spring beans
  • Winter oats
  • Entry Level Stewardship

Family owner-occupied farm

  • One paid manager
  • One full-time general farmworker
  • Casual labour when needed

Machinery

  • 300hp tractor (for example, Challenger, on or off tracks)
  • 175hp tractor (main drill tractor)
  • 135hp tractor plus 135hp tractor (hired when needed, such as harvest)
  • 350hp combine harvester (a Claas Lexion 570 being traded in for 750 owned)
  • Telehandler
  • Mix of new and well-depreciated kit; tractor life expectancy 7-8 years

“The November price was £10/t over the spot price at harvest and the £10.50/t cost to store applies whether you store to October or January.

“So we won’t sell till January to get the carry in the market – of course the cashflow needs to allow this marketing strategy in practice.”

Oilseed rape produced a yield 20% higher than budgeted and considerably over the five-year average.

The decision was taken at harvest to sell 2.5t/ha for harvest movement at £260/t plus oil bonuses, which rounded the price up to about £280/t.

The remaining crop is in the budget at £285/t including oil bonus, and will be sold for movement in March/April 2016, depending on cashflow requirements, which at this time will be dictated by the arrival or otherwise of the farm’s basic payment.

Virtual Farm aerial view

A yield increase of 20% took the spring bean average to 4.45t/ha. However quality in some areas was reduced by some colouring and bruchid beetle damage.

The budget assumes that 75% will make the human consumption market, adding a much needed £20/t to the basic feed crop price of £130/t.

The better yield will also go some way toward helping the gross margin.

The original budget had a spring bean price of £180/t but the larger crop off a larger national acreage (due to greening requirements) has had a big effect.

The beans also help with grassweed control, spreading workload and helping crop performance by reducing spray and fertiliser costs.

The winter oat crop surprised with a 10-15% yield increase.

The crop has all been tested and passed for seed and sold under a seed contract, which has a base of wheat price fixed at £120/t plus £25/t for seed grade.

“There were extra costs because hand roguing was needed. However, with the added premium for making the seed grade they generate our second highest gross margin after first wheat,” said Mr Morley.

Management decisions

Having sold the farm’s 135hp tractor, a replacement was hired for 14 weeks this summer and the whole machinery policy is to be reviewed in 2016.

Virtua Farm field margins

The farm will apply next year for a Countryside Stewardship scheme to start in January 2017. This will be on a smaller area than its whole farm Entry Level Stewardship (ELS) scheme, which finishes in 2016.

The application will need to focus on options that match the priories for the area and will use existing features including buffer strips, challenging corners, difficult land and hedges, retaining many features from ELS or Leraps and the Campaign for the Farmed Environment.

An outline application has been submitted for a large productivity grant for irrigation equipment – a full application may be needed.

The Virtual Farm fallowed 24ha in 2015 and will retain a similar fallow acreage for 2016, having calculated that this is a sustainable way to manage the worst blackgrass areas, reduce weed control costs and improve first wheat yields.

Table 1: Harvest results
  Five-year average crop performance Harvest 2015 yield % difference
First winter wheat 9.26t/ha 10.50t/ha 13.33%
Second winter wheat 7.90t/ha 9.14t/ha 15.62%
OSR average 3.46t/ha 4.32t/ha 25%
Spring beans 3.7t/ha 4.45t/ha 20%
Winter oats 6.79t/ha 7.78t/ha 14.55%
Cropped area 810ha (2,000 acres)   
Table 2: Wheat sales
Amount Date Price
10% April 2016 £140/t
15% November 2015 £145/t
25% March 2016 £130/t
25% March 2016 £120/t
(75% sold of original budgeted yield)  

2016 outlook

Wheat yields in the 2016 harvest budget have been set at the five-year average though the farm aims to match 2015’s yields.

“Margins are tight so where possible we have used 50% home-saved seed. We have continued with our same cropping policy and varieties; they show good vigour and disease control.

“In August we sold 20% of the 2016 wheat harvest for April 2017 movement at £130/t, with the hope that this is our lowest sale. The remainder is in the budget at £128/t and no other crops have been marketed.”

Fertiliser costs have been fixed, with 80% of nitrogen requirements secured through the purchase of UK AN at £225/t on normal payment terms, and the farm’s nitrogen sulphur requirement met with UK product at £230/t.

P and K has not yet been bought – straw is incorporated so only maintenance P and K will be needed.  

“Spray costs have seen a steady increase as we are keen not to let grassweeds get a foothold.

“There has been just slight inflation of agrochemical costs on farm. Where possible, we are reducing costs by cultural methods, such as fallow and delayed drilling of vigorous varieties,” says Mr Morley.

Table 3: Virtual Farm budget (£/ha)

 

2012 (actual)

2013 (actual)

2014 (actual)

2015 (original budget)

2015 (revised budget October)

2016 (budget)

Gross margin      

Winter wheat

521

746

825

773

820

670

Second winter wheat

469

499

610

526

581

440

Winter OSR

771

304

539

511

741

497

Spring beans

608

675

613

418

398

311

Spring barley

 

796

       

Winter oats

     

537

764

533

Fallow          -30  -30

Total gross margin      

 

578

502

660

591

697

525

Non-farm income

 

 

250

252

242

225

225

193

Overheads      

 

467

465

499

485

485

494

Profit pre-rent and finance      

 

361

289

403

331

437

224

Rent + finance      

 

94

96

96

131

131

131

Profit      

 

264

190

306

203

289

118