Three-quarters of the crops drilled, and three-quarters of a crop expected. That’s how Yorkshire farmer Tony Pexton sums up this season’s prospects following the wettest autumn he can recall.

Compared with many other arable businesses, Mr Pexton says he’s lucky. He had a reasonable harvest in 2012 across the 445ha he farms from Watton Grange, near Driffield, so has not taken as big a hit on yield or quality as many growers suffered.

Nevertheless, poor prospects for 2013 are set to knock a sizable hole in his business’s cash position; a problem that has demanded swift action.

“We were fortunate last harvest in that our oilseed rape and barley yielded well,” he says. “The wheat was down about 1.25t/ha and bushel weights were lower due to the lack of sunshine, although they were still in the low 70s. But, given the good grain values, returns were pretty much on budget.”

However, heavy rain that began in April and continued through harvest rarely let up through the autumn. The farm received 62mm during September, 85mm in October, 132mm in November and nearly as much again in December.

“These figures are well above our normal average,” says Mr Pexton. “We started off with wet land, and it got wetter.”

Despite this all the OSR was established and looks reasonable. Barley sown in late September has also fared well considering the soaking it has received.

Early-drilled wheat after rape also looks fair. The farm’s standard approach of plough and combination drill paid off in the catchy weather, Mr Pexton believes.

Heavy rain halted further progress until mid-November, when another tranche of wheat was sown. Since then the drill has remained idle. “About 40% of the crops have potential, and a quarter will produce something,” says Mr Pexton.

“We will manage all our crops according to potential this season to ensure we get the best margins over inputs.”

About one-third of the farm remains fallow, and much will stay that way. “We have kept off wet soils – you could dig holes and they’d be full of water in no time. We were unable to plant any more wheat or the winter beans, and we have decided not to plant spring crops either, apart from a couple of lighter fields.”

That will leave about 120ha as fallow. Although soils have not suffered too badly, says Mr Pexton, this will avoid any further damage and allow time for any remedial work needed. A cover crop may be sown later to draw out moisture.

More importantly, it will allow an early start to next season’s drilling campaign. Mr Pexton believes muddling in a spring crop risks poor returns and will also put harvest back and delay sowing, which could mean cashflow problems continuing into 2015. “That is something we want to avoid at all costs – it’s all about getting back on track in 2014.”

At current commodity prices Mr Pexton is facing a cash shortfall of at least £220,000 in the 2013/14 financial year, and the effects will be felt well beyond that. Although he will save on some input costs due to the lower acreage, it still amounts to a massive blow to any business. But other growers are bearing even bigger losses due to a very poor 2012 harvest, says Allan Wilkinson (pictured right), head of agriculture at HSBC Bank.

“Average UK wheat yields dropped to about 6.7t/ha and many growers suffered very low bushel weights and other quality problems. In extreme cases deductions of up to £50/t were reported. Whereas Tony has yet to feel the full effects of his cashflow problem, these businesses are feeling it already.

“On the other hand we do have some customers who have managed to get most of their current winter crops sown in reasonable conditions. We are seeing a lot of variation, even between neighbouring farms, and are having to treat our customers very much on a case-by-case basis.”

Requests for overdrafts are up markedly, and will continue to rise, says Mr Wilkinson. “Overall, harvest 2013 looks as though it will be more challenging in terms of returns than 2012. Cashflow budgeting is going to be crucial, both as a thought process and an actual document.”

Getting to grips with the problem early on is key, says Mr Wilkinson. Mr Pexton is doing all the right things, he says – as well as doing all he can physically to mitigate the problem, he is also focussing closely on the inevitable cashflow shortage around the corner.

“Farmers must let their banks know about the situation. Dialogue between both parties needs to be regular to avoid shocks and to allow for changing requirements. We don’t want to over-engineer what we are doing, but this is a far better approach than working to normal figures and suddenly finding regular farming income is set to drop by £200,000.”

Everyone in the business should be consulted and have an input, he stresses. This will reflect the best thoughts at the time, which will need to be revised constantly to pinpoint the income and expenditure pressure points.

“Instead of having one cashflow document with minor adjustments for the year, you may end up with one a month as sales and purchases are realised, plans develop and events unfold.”

Businesses must factor in big changes in borrowing requirements. Many will require increasing working capital requirements as the farm returns to a full cropping programme next autumn against a backdrop of lower income, he says. “Some may choose to sell at harvest to help out, but what effect will that have further ahead?”

Farmers also need to talk to their accountant about their ongoing tax bill given that ongoing profit is set to fall, or even disappear, says Mr Wilkinson.

Loan commitments should be rescheduled where possible to help reduce potential shortfalls. In addition, capital expenditure such as machinery and plants can usually be deferred and input terms negotiated to help bridge the gap. “

Businesses also need to understand the sensitivity to key determinants of cashflow – such as yield and quality effects, commodity prices and input costs – and ask what they are doing to contain those uncertainties, says Mr Wilkinson. “Forward selling and managing costs, for example by negotiating payment terms, can help, as could hedging the single farm payment.”

Mr Pexton echoes Mr Wilkinson’s views. “One of the first things I did was to contact my bank manager. I told him I didn’t know what was going to happen, but that things were going to be tighter and I needed to make some adjustments.”

As well as opening the dialogue, Mr Pexton has also found a fresh pair of eyes very useful when it comes to checking through his thinking and figures.

Nevertheless, it is impossible to be overly accurate with figures, especially in the current situation, he points out. “But you have to start somewhere. Cashflow requirements will change through the year, so I will be reviewing the forecast each month.”

Fortunately grain prices look relatively stable – had they dropped to £140/t Mr Pexton says he would have taken a real hit. Despite that, to help reduce the risk and to aid budgeting he is considering selling a good proportion of oilseed rape and barley to lock into good prices and provide security for additional borrowing.

But he is reluctant to commit any wheat and will wait until later in the season. “We’ve all heard of people who oversold harvest 2012 and who had to buy in the shortfall at massive cost.”

Fortunately much of the farm’s machinery has been replaced over the past three years, he adds. “We invested during some reasonable years. We will have to put off some building repairs and improvements. We’ll assess this job by job.”

While good management can help restore a business’s cashflow position relatively quickly, 2012 will leave farming with a higher cost base, Mr Wilkinson warns.

“Even if farmers such as Mr Pexton have a normal harvest in 2014, they are unlikely to be able to repay all of their additional working capital requirement on the back of it. It could be two to three years before we see a return to more normal levels of investment. For some growers it may mean a more fundamental review of the way they farm.”

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