Arable margins set to fall as cost of production rises

Combinable crop margins are set to fall by more than £80/ha for both the 2018 and 2019 harvests after the improvement seen in 2017 crop results, says consultant Andersons.

Lower yields, following the late wet spring this year, alongside higher machinery depreciation and fertiliser costs are among the main reasons for trimming expectations.

 This has reduced business margins, after all costs including rent, finance and private drawings, to £221/ha for both years.

This compares with £305/ha in the 2017 crop year, the best result since 2012 and one that was helped by another rise in BPS.

The 2018 and 2019 figures mean that if it were not for BPS support, the farm would only just break even after taking account of all costs, including drawings of £79,000 for the family partnership.

Since the budgets were compiled in May, the new season nitrogen market for 2019 crops has kicked off at £15-£28/t above the figure used by Andersons.

“Combinable crop margins are tight and may well get tighter,” says Nick Dee, a partner at accountant Hazlewoods.

“Costs continue to increase. While old kit has held value well, new kit is more expensive again.

“Insurance is a big cost. More people are looking for alternative quotes, but need to be smart as there are only a limited number of underwriters and different brokers may be approaching the same underwriters.”

Mr Dee sees profitable businesses considering switching to company status but warns this needs a careful approach in terms of how cash will be used in the company – if it is all extracted then there is no real saving.

Crop outlook

UK wheat prices would be £15-£20/t lower were it not for the continued weakness of sterling, says Andersons head of business research Richard King.

That weakness is one of the potential upsides for 2018 harvest prices.

However, the UK will also draw in imports if the UK produces another relatively small wheat crop.

Current expectations from a smaller area are for a 14m-tonnes plus crop, compared with almost 15.2m last year.

This week futures prices were boosted by the US Department of Agriculture cutting its forecast for Russian wheat crop by 3.5m tonnes to 68.5m tonnes, following dry weather after a wet spring.

This would mean a 19% drop in Russian wheat production compared with the 2017-18 crop.

European wheat production for harvest 2018 was also revised down by 1m tonnes to 149.4m tonnes, 1% lower than in 2017.

UK ex-farm prices rose by another £1/t midweek compared with the previous week, with spot feed wheat averaging £159/t ex-farm and new crop £153.40.