Bright prospects for 2012 crop margins

Next year’s gross margins from wheat and oilseed rape could be significantly better than this harvest, despite a rise in production costs.

Autumn crop budgeting figures from Masstock suggest a sustained upturn in prices will more than compensate for a rise in the costs of key inputs, principally fertiliser and sprays.

“While harvest 2012 prices don’t necessarily reflect the exceptional levels seen over the past season, we believe there’s room for considerable market optimism,” Masstock consultant Roger Hellawell said.

“Last year we were budgeting on a wheat price of £125/t, but now November 2012 is trading nearer £150-160/t and has stayed reasonably stable at that range for sometime, giving farmers the opportunity to secure a decent margin.”

Variable costs (seed, fertiliser and sprays) were likely to be up around 10% overall, but the rise in grain prices meant that fertiliser cost as a percentage of crop output was relatively unchanged, he noted. For example, fertiliser cost as a percentage of osr crop output was budgeted at 15% for 2012, virtually unchanged from harvest 2011, slightly below 2010’s 17-18% and well below the 27% in 2009.

Winter oilseed rape had the potential to be the best margin earner for many growers in 2012, with a 5t/ha crop predicted to deliver a gross margin of over £1,200/ha. That put it on a par with a full spec 10t/ha breadwheat, or 12t/ha Group 4 wheat.

“Prices and premiums may change, but our analysis really underlines that yield is still king and skimping on variable inputs doesn’t pay,” Mr Hellawell said. “A 1.2t/ha variation in the yield of a Group 4 wheat results in a 20% change in margin.”

When considering any future crop it was important to consider its potential margin in the context of its risk and place in the rotation for controlling diseases, weeds or pests, Mr Hellawell advised. It was also important to remember that overhead costs – excluded from gross margin calculations – could have more influence on profitability than direct input (variable) costs.