Are the returns worth it?
There is nothing like a close
look at the farm budgets to
concentrate the mind. The
exercise has triggered several
searching questions at Hoe
Hall. Robert Harris reports
FARMING is in James Keiths blood; he would, he admits, find it difficult to do anything else.
"Our basic business structure is sound, mainly because of our strong asset base," says Mr Keith. "But what happens, when, as now, you start eroding that base?"
Given the share performance of new internet businesses, or the gains to be had in property, farmings inability to provide a decent return on capital cannot be ignored, says Mr Keith. "I have a family to answer to. Will they thank me in 20 years if the farm is still stumbling along?"
Consequently, every facet of the business is being scrutinised to maximise its earning power, with the pig unit commanding more attention than most.
"Why should I keep churning out pigs, when I can get much better return on my capital elsewhere? We farmers have been subsidising food production out of our own account for too long."
His main pig herd is run on high welfare standards using strawed yards. Pigs are taken to bacon weight for Waitrose. They attract a reasonable premium, making a price near the generally accepted UK break-even value of 90-95p/kg.
But straw costs soon erode that bonus. "We bale about 1600t of straw a year, which costs about £15,000 for baling and carting plus extra fertiliser of £13/ha. We could sell it for £56,000. That, and the cost of an extra man and forklift, adds about 8.5p/kg to our costs of production. We are hardly breaking even, so there is a real possibility that the unit will close."
Machinery may also be rationalised. "We have a 200hp, six-year-old John Deere ploughing tractor that has done about 5500 hours. We might chop this in, together with a 140hp tractor and buy one 160hp replacement.
"We could run this longer – round the clock when ploughing – and use it during the rest of the season for top and trailer work. I can hear the depreciation falling off our two combines, I do not want to hear it on a tractor, too."
Mr Keith has also considered taking on land to make more money. But with set-aside payments for 2000/01 estimated at £221/ha (£91/acre), there is little chance of either contract farming or a farm business tenancy paying, he believes.
"We looked at taking on 250 ha, but putting in a realistic farmers charge of £80/acre left us a bottom line of just £5000." That leaves little margin for error. Further strengthening of sterling, or a serious machinery breakdown, would soon wipe it out, he notes.
One idea being given serious consideration is farm business consultancy. "We have the in-house expertise. Simon is BASIS- and FACTS-qualified, and, with Michelles accountancy skills, we do all our own budgets. We have slashed our professional fees, from about £14 to £5/acre.
"Few farmers want to give up farming. We can take the drudgery out of it by doing the paperwork, leaving them to continue with the practical side of things," says Mr Keith.
The wide range of crops traditionally grown at Hoe Hall will continue, helping to spread machinery and labour demand. The farm budget supports that decision; even first wheats show little extra profit over other white-strawed crops (see box), says arable manager Simon Brock. Oilseed rape also looks much more attractive after the recent lifting of over-planting penalties, he adds.
On the practical side, 20ha (50 acres) of Optic malting barley has been drilled, attracting plenty of rooks. But most fields are now emerging, so damage should be minimal.
Victor spring beans, sold forward for a "decent premium" will be the next crop to be drilled, followed by Lantra peas for micronising.
All 154ha (380 acres) of Apex, Madrigal and Pronto oilseed rape have received 80-90kg/ha (64-72 units/acre) of nitrogen; Consort second wheat and half the Regina winter barley 70kg and 60kg/ha, respectively. After the rest of the barley is done, 332ha (820 acres) of Clare, Consort and Riband first wheat will be tackled.
"It could be argued that we are a bit early. But we cant afford to get behind. We want everything to have had some nitrogen by the beginning of March," says Mr Brock.
Mr Keith has also sold about 30% of his wheat forward, achieving £67/t ex-farm for November movement. "It is better than budget. And the £ shows little signs of weakening, plantings are up, and animal consumption is likely to be down. I cant see the wheat price going anywhere exciting." *
Cereal gross margins
W S OSR
Yield(t/ha) 9.5 6 3.7
Price (£/t) 65 85 119
Area aid (£/ha) 221 221 322
Output 838 731 762
Seed 37 55 33
Fertiliser 75 40 96
Sprays 143 94 98
Gross margin 583 542 535
Straw costs soon erode welfare premiums, says James Keith.
• Swanton Morley Farms, based near Dereham, Norfolk, is a 890ha (2200 acres) largely arable unit managed as a family partnership by James Keith, his wife, Victoria, and mother, Penelope.
• Arable crops cover 90% of the unit. Wheat grown on medium sandy loam soil goes as feed. Barley goes for malting. Sugar beet is also grown. A further 182ha (450 acres) is contract farmed locally.
• There are two outdoor pig herds; 550-sow conventional and 140-sow organic. Growers are taken to bacon weight in straw yards. A 26-cow suckler herd grazes parkland. Red deer calves are also finished.
• A number of cottages are let.
• Farm staff of 12.