2013 outlook: Combinable crops
What does 2013 hold for UK farming? Farmers Weekly and farm business consultant Andersons have teamed up to provide an outlook. Today we look at combinable crops.
This season’s crops have had a poor start. Extraordinary levels of rainfall that badly affected the harvest have continued, hitting preparations for the 2013 cropping year.
At the time of writing, significant areas remain undrilled, while some crops that were established have suffered poor germination and slug damage. Many businesses will be considering their spring cropping options.
“Although the summer and autumn have turned into a nightmare for many producers it is crucial to look forward and replan if necessary to optimise profits for the future,” says Andersons Midlands partner Sebastian Graff-Baker.
“With average wheat yields down 14% on the five-year average and low bushel weights commonplace, many businesses will see their turnover from harvest 2012 significantly depleted compared to budget.
“Swift action to revise cashflow forecasts will be essential to help secure sufficient working capital going into 2013.”
Not all crops fared as badly as wheat. Oilseed rape yields are up by 5% on the five-year average and winter barley yields are close to trend.
Record prices have been the saving grace for some wheat growers. For others who sold significant volumes forward and face substantial claims, the market price has been largely theoretical.
Key points and management advice
Further rundown of world grain stocks should support prices well going into harvest 2013
More “normal” production year could see prices easing
Many businesses carrying high depreciation charges
Some high short-term rents will result in losses
Revise cashflow forecasts
Sell forward with caution
Review fixed costs where possible
Prices should be well supported going into harvest 2013, says Mr Graff-Baker. Grain production estimates have been progressively cut, primarily due to the drought in the US. Global use now exceeds production, indicating a further rundown in stocks, particularly maize, for the 2012-13 marketing year.
However, assuming a return to more normal production levels, prices may ease from current highs. “An ex-farm feed wheat price of £185/t for harvest 2013 looks plausible,” he says.
Given the effect of this autumn’s weather on cropping plans and yield prospects, great care should be taken when selling forward. “Growers should be conservative with the amount they book. But they certainly shouldn’t dismiss selling forward – if prices do come back they might miss a real opportunity.”
While price prospects look reasonable, it is still crucial to examine production costs, he advises. Many businesses have reinvested in equipment and machinery on the back of higher output prices from 2011 and advantageous tax breaks.
“For many this was the right thing to do. However, this inevitably increases depreciation charges. It will be crucial to make the most cost-effective use of these resources, and indeed all fixed costs, to spread and possibly reduce the underlying impact on the business.”
Many businesses have recently entered into short-term agreements at high rents or rent-equivalents, notes Andersons partner Mike Greetham.
“There is a long-standing rule-of-thumb that arable rents should equate to a tonne of grain per acre. FBT rents should be around £160/acre for agreements for the coming couple of years.”
People who have paid up to £250/acre for arable land will have farmed at a loss, says Mr Greetham. “Many paying around £160/acre may still have lost money this year, but over the three- to five-year term they at least stand a chance of recovering their financial position.”
Commentary based on Andersons’ Outlook 2013
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