Cereal growers face 2009 losses

Many cereal growers will be losing money come harvest 2009, as rising input costs overtake falling market returns.

Julian Bell, senior consultant at the Scottish Agricultural College, told the recent HGCA Grain Market Outlook Conference that variable costs (including fuel bills) for feed wheat would reach £90/t for next harvest, compared with £54/t in 2007/08 (see graph).

wheat production costs

Of this, £52/t would be due to fertiliser costs, which had almost tripled since last year. Seed and spray costs were also forecast slightly higher, while fuel prices were now falling. “But these only represent a small amount of overall costs,” Mr Bell said.

With new crop feed wheat estimated at £110/t, there was little margin left to cover fixed costs.

Looked at another way, Mr Bell suggested that an average producer, achieving 8t/ha of feed wheat, would suffer a net loss of £31/t after deducting all costs (see table). Just to break even, wheat growers would need to achieve at least 10t/ha.

Mr Bell said timing was crucial – when to sell the 2008 crop and when to buy 2009 fertilisers. Those who had done both at the time of the Cereals Event in June had made the right decision.

But those who had waited were now struggling. With ammonium nitrate costing £377/t, potash £580/t and phosphate £683/t, many growers were being forced to sell their 2008 crops just to secure their fertilisers for the coming season.

This, in turn, was contributing to the current supply pressure in the grain market. “If you had to sell today to cover next year’s fertiliser requirement, you’d have to sell almost half your crop,” he said.

UK fertiliser costs were estimated at £928m for harvest 2009 compared with £387m last season and growers were encouraged to maximise the use of organic manures and crop residues, and use soil sampling and more accurate application methods.

* These views were echoed by HGCA analyst Heike Hintze-Gharres, who said expected gross margins for 2009 had been trimmed signifcantly between August and September. Milling wheat promised the best margin, but things were tight and, although information was still scant, wheat plantings were expected to be down this autumn.

wheat production costs


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