Farmers attending Cereals 2010 will be the first to see a new forecasting model that has been developed specifically for commercial arable farm businesses by Farmers Weekly and Savills.
The “virtual farm” model delivers dynamic cash flow analysis with sensitivity to input and output prices, highlighting headline changes in the arable farming business and providing practical pointers to farm business management and marketing.
“We’re looking to develop current standard farm benchmarking and build a more flexible model that will enable current and future issues to be discussed and challenged,” Savills head of rural research Ian Bailey says.
The aim is to help arable farmers appraise their businesses and to identify the most appropriate financial targets which will boost efficiency and improve financial performance.
Although the model is based on a hypothetical 2050-acre family partnership farm in central England, the principles and outputs are applicable to smaller units. Rotation is based on combinable crops, primarily first and second wheats, oilseed rape and beans, with cultivations and machinery centred around a non-inversion tillage system.
A full breakdown of appropriate fixed and variable costs has been built into the model to ensure it realistically reflects the challenges facing arable farmers and the principles apply to all farms, adds Robert Hall, a senior Savills agribusiness consultant.
“We’ve built the gross margins from first principles, for example, down to the nearest kilogram of nitrogen. This will enable us to look at the full impact of certain business management issues.” Traditional comparative analysis tends to treat all inputs as being independent of each other, whereas in practice there is often considerable interaction between the cost elements, he says.
The model can be used to demonstrate how increases in red diesel and fertiliser prices, delays to the single payment, or fluctuations in grain prices, impact on farm business cash flow through the season. Ultimately this will help farmers plan and prepare for potential “pinch points”.
One solution may be to alter crop selling periods or the timing of input purchases, and the model will be able to demonstrate how this affects business performance throughout the season.
Mr Bailey acknowledges that the model is a hypothetical farm and figures are unlikely to exactly match individual situations. “We are fully aware that all businesses are different, but this model will identify the issues of sensitivity and identifying trends all arable farmers need to be looking at. In essence it will allow us to challenge and discuss various scenarios to drive efficiency.”
In the future it could be used to monitor the financial impact of any issues relating to arable farming, such as those of carbon sustainability policy, climate change or new technologies.
“Keeping an eye on all business costs will become more important as energy prices climb and issues such as climate change, renewable fuels and market volatility continue to affect farm businesses. We’ve seen just recently how anything from volatile exchange rates to speculator activity in grain markets can either directly or indirectly affect farmers. It’s all about managing your business better in these volatile times,” notes Mr Hall.
You can see the latest cash flow forecasts produced using the model by visiting the Farmers Weekly stand 429 or the Savills stand 453, where the model can be further explained by a number of experts.