Covering costs top priority when making crop choices

KNOWING OPERATION and production costs, yield expectations, premium potential and what will be saved by not cropping are among the crucial questions for decision making this spring as farming prepares for the new single farm payment.

Yield is a critical factor, says ADAS senior business consultant Stephen Watson. “Only growers in the top 25% will make margins sufficient to cover cultivation costs in most crops, while the average grower will be short of the cultivation and combining costs on most cropping options, but in some cases only just.”

Farmers in the bottom 25% will not even cover the cultivation and combining costs with any of the spring cropping options, he warns. “Looking at the whole farm financial situation is going to be critical on these farms.”

As well accounting for cultivation and harvesting costs, don’t forget to budget for other crop related operational costs, such as drying and handling in and out of store, adds The Arable Group’s Andrew Wells.

Ideally, the crop gross margin should cover the operational costs, he says. “If not, why is the crop being grown?”

Even so, most farms will continue to crop because, where there are machinery and labour costs to carry, this loses less money than not cropping, says Mr Watson. “Not sowing a crop is only an option if the fixed machinery and labour costs can be eliminated or drastically reduced. Farmers using only contractors will have the option to sow or not, as they can immediately reduce fixed costs.

“The savings on many farms from not cropping are relatively small and for many the non-sowing of crops is just not an option. In these circumstances it is what crop will make the most, or lose the least, money.”

Leaving land uncropped does incur some small costs to meet cross-compliance requirements, says Mr Wells. “Spring cropping for a break-even return is acceptable if other benefits can be obtained such as repairing soil structure damage from harvest 2004 or growing a protein crop to leave a residue for the 2006 crop.”

Some parts of the country have had an extremely difficult autumn drilling period this year, points out Sentry Farms” managing director Andrew Mason. “Land coming out of root crops may not be ideally suited to go into a profitable spring crop next year either.”

In some cases, that could make it sensible to drill the main land area, leaving headlands fallow, depending on soil conditions, he says.

An area of fallow may allow remedial cultivation to be carried out within the rules, and also provide a good early entry into the autumn 2005 crop. “However, fallowing and keeping ground in good agricultural condition must also be properly costed,” he warns.

Growers will have to consider their options far more precisely than ever before this year, he continues. “Making sure machinery is available and getting the correct spread of cropping to prevent any bottleneck will be key factors.”

“Spring crops tend to require timelier drilling than autumn crops, and if this is wrong, it can have a major impact on yield and quality. Drought conditions can have a greater impact [on spring crops too].”

Choose crops that suit your own soil type best, Mr Mason advises. “Major issues to consider are which crops are you best geared to cope with, and the effect on following crops.”

The former means considering your drying and storage facilities. “Don’t have too many crops needing separate or careful drying or storage.”

As well as considering which spring crops will provide a good entry into the following crop, most spring break crops are useful in the wider context of weed control, he says.

Control blackgrass

The opportunity to control blackgrass should be factored into the overall value of a spring break crop, says Strutt & Parker’s Charles Ireland. “Assess spring crops on a net margin basis, and not simply on output.” As well as a crop’s value in helping to control grassweeds, growers should also consider the number of passes needed, and the level of inputs required.

Whatever crop you go for, go for a premium market, urges Banks Cargill’s Charlie Whitmarsh. “That takes out the base price risk as much as possible, but make sure you manage it for that market, for example with your fertiliser policy.”

Securing at least part of the sale via a contract or a future/option agreement is important, agrees Mr Mason. “It helps calculate your anticipated margin and decide whether it is sensible to grow.”

Mean gross margin estimates from all five consultants place spring malting barley as the number one option for growers this spring. “That’s the pick of the bunch,” according to Mr Whitmarsh.

With winter barley plantings down in autumn 2004, he expects growers to increase their area of spring barley, with contracts ranging from fixed price, premium over feed to min/max available. “They mostly require 1.75% max nitrogen, but some go up to 1.85%. Premiums over feed are around 18/t.”

Both Mr Watson and Mr Wells have spring milling wheat as their top spring crop option over malting barley, albeit marginally.

With either, the premium, and the consistency at which a farm can achieve the specification are the critical factors. “Providing the full milling or malting quality and premiums can be achieved, both are top performers,” says Mr Wells.

Take into account the farm’s track record of achieving good yields and the required grain quality when selecting a spring cereal, he advises. “Spring cereals generally perform well after root crops, or in the case of spring barley, a previous cereal crop.

“There is obvious concern about the condition of the soil structure following root crops this year, and whether cultivation can remove the damage caused during root crop harvest.”

Spring oats are relatively more risky, Mr Mason points out. “They require a contract, and achieving contract quality is crucial.”

But they do offer a good break crop for some growers, particularly for those already growing the winter crop, counters Mr Watson.

Most spring breaks show very similar gross margins, says Mr Wells. “Decisions around these revolve around seed costs, storage and marketing options, area to be grown, combine capacity and harvest timing.”

Premium pulses offer the best returns, according to Mr Ireland. “The top 25% of human consumption pea growers achieve gross margins almost 40% higher than the bottom 25%.”

But only go on land that you know has a history of good pulse yields, he warns.

Standard feed peas are not that attractive, but premium peas will give good margins on buyback contracts offering up to 150/t, says Mr Whitmarsh. “Marrowfats look good if you can achieve the quality. But be realistic because of waste and stain – don’t set your targets too high. Also remember their standing power is nowhere near as good as some of the blues, and you’ll need to get them into the combine clean.”

Peas are a difficult crop to harvest, says Mr Watson. “Weather during flowering is critical from a disease point of view, and even more critical at harvest. A wet harvest like the last one does not suit peas and crop losses can be high, particularly in the wetter western areas.”

Clashing with wheat harvest, putting increased pressure on combines and management can also be an issue with peas, says Mr Wells.

Feed peas

Spring beans can also be potentially late to harvest, says Mr Watson. “But financially they are a better option than feed peas. They’re relatively easy to grow and more reliable than oilseeds, and will stand the weather better.”

Again, getting the premium available for the human consumption market is critical, says Mr Mason. “Along with peas, there is a distinct advantage regarding nitrogen fixing for the following wheat crop, especially if nitrogen prices remain high.”

Late drilling may be an advantage for spring oilseed rape but the consultants are wary of its variability. “They’re very volatile, even from one year to the next on the same farm and with the same management,” says Mr Watson.

Linseed is gaining interest with some good contracts available, with the advantage it has a reasonably wide drilling window, provides a good entry into the following cereal crop, although a late harvest can be an issue.

“But don’t be too optimistic about yield,” concludes Mr Whitmarsh.