30% drop in net profits forecast from harvest 2020

Arable farmers in the East Midlands saw an 18% drop in net profits from harvest 2019 and could see a further drop of 30% from harvest 2020, according to agricultural accountant Duncan & Toplis.

A survey of businesses farming a total of 8,000ha across the region shows average net profit – which is farm income after rent and finance have been deducted, but not personal drawings – reduced from £163/ha in 2018 to £133/ha in 2019.

This fall is partly due to the average selling price for winter wheat being 10% lower than for harvest 2018 – falling from £165/t to £148/t – although those growers with wheat still to market will be hoping to benefit from better prices.

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It also reflects a slight rise in costs, with fuel costs up, and many businesses choosing last year to invest in property repairs, as well as road and building projects, off the back of a good 2018.

The survey shows that farm gross margin (which includes subsidy income) across the whole farmed area reduced 3.9% from £692/ha in 2018 to £665/ha in 2019.

The businesses all have a year-end between September and January and are contracting in at least 50% of the area they farm.

Wet winter to blame

Mark Chatterton, head of agriculture at Duncan & Toplis, said after a very strong 2018 harvest, farmers would be disappointed to see their profits for last year fall.

But he warned that harvest 2020 could see farm gross margins reduce to just £392/ha, as a consequence of the wet weather across autumn and winter.

“While harvest 2019 saw profits reduce, we expect that many farms will face an even more difficult harvest this year.

“Costs will be higher as the unique weather required the use of expensive power harrows to work the land this spring and the impact that flooding had on the planting of winter crops will affect income.”

Mr Chatterton said he was forecasting that the farms would experience as much as a 50% drop in gross margin and a 30% drop in net profit for 2020.

While the figures would not come as a surprise to farmers given the challenging season they had faced, it would make the next few years difficult and they would be more reliant on subsidies as a result.

 “Farms should be looking at ways they can reduce their costs by putting off investments in property, repairs and capital projects and look into drawing on private capital,” he said.

But he stressed that while it might be possible to defer investment in some machinery for 12 months, it was also important to make sure that businesses kept their 10-year machinery replacement plans broadly on track, so they spread their costs appropriately.

Duncan & Toplis East Midlands farms survey results

  Harvest 2018 Harvest 2019
 
£/ha
Farm gross margin 692 665
Overheads    
Labour 104 104
Power and machinery 266 266
Property costs 28 37
Other overheads 45 44
Total overheads 443 451
Net farm income before rent and finance 249 214
Rent and finance 86 81
Net farm income 163 133

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