Cereals 2016: Many cropping farms face loss on 2016 harvest

Many UK combinable crop farms will make a loss on their 2016 harvest and some will need a fundamental reassessment.

This outlook from farm business consultant Andersons is based on the prospects for its Loam Farm model farm, a 600ha combinable cropping business with a simple rotation of milling wheat, oilseed rape, feed wheat and spring beans.

The business is well managed and the farm is a top-third performer but, like many others, carries high labour and machinery costs.

Negative margin

As a result of this and because high world grain stocks mean the current price range could run through to harvest 2017, the business is set to make a negative margin of about £10/ha from the 2016 harvest, according to predictions unveiled at the Cereals event.

See also: Production costs top market prices for many 2015 crops

This is after including the BPS payment and accounting for all costs, including private drawings of £77/ha (total £46,200).

It marks the first loss for the business since 2000 and compares with a positive £99/ha margin from the 2015 crop.

‘Poorer trading years’

“A run of poorer trading years will be taking a toll on cash balances in many cropping businesses,” said partner and head of business research Richard King.

“The ‘wait-and-see’ approach of doing the same thing and hoping conditions will improve will no longer suffice for many. Fundamental change may be required.”

Loam Farm, like many others, had a fairly high-cost production system with limited short-term options to change, said Mr King.

Its fixed costs are set to fall by about £10/ha for harvest 2016, with spending having been postponed, but they will rise again in 2017.

Flat prices

The 2016 harvest budget is based on a return to long-term average yields, with prices flat and similar to the 2015 season.

Despite pressure on crop prices, some costs had not come down as far as expected, but reductions in fertiliser were expected this season.

The potential for big short-term currency shifts must be kept in mind. “A euro at 85p adds about £20/t to wheat prices compared with 70p,” said Mr King.

Land costs

High land costs had been a big factor in poor financial performance on many farms.

Market rent levels had been slow to adjust to the new outlook, he said.

As a result, no change in the rent has been budgeted for half of Loam Farm’s farm business tenancy land, which comes up for renewal this autumn.

“As Loam Farm demonstrates, high rental levels have added cost in many businesses.

“While individuals cannot force the market down, all parts of the sector need to take a realistic view of economically sensible rental levels,” said Mr King.

He emphasised the vast range in farm business performance, driven largely by the quality of management.

Performance improvement

However, there were many areas where combinable cropping businesses could improve performance:

  • Achieving high yields through timely operations and input use
  • Giving more attention to longer-term issues of fertility, soil structure and weed burdens
  • Identifying loss-making fields and doing cost-effective remedial work, otherwise these areas may be better fallowed
  • More co-operation and collaboration to take out costs
  • Consider funding through the Rural Development Programme/Countryside Stewardship (CS) and other opportunities.

Loam Farm has not made a CS application, but would probably do so in future, said Mr King.

Loam Farm budgets (£/ha)

Harvest years

2014 (result)

2015 (result)

2016 (estimate)

2017 (forecast)

Output

1,132

1,048

947

1,007

Less variable costs

425

431

421

410

Gross margin

707

617

526

597

Less overhead costs

407

404

394

405

Rent and finance

218

242

242

243

Drawings

77

75

77

77

Margin from production

7

(104)

(187)

(128)

Add SPS/BPS and ELS

226

203

176

175

Business margin

233

99

(10)

47

Source: Andersons (Figures may not add up due to rounding)

Loam Farm budget – prices and yields

Crop

2016

2017

Feed wheat

8.9t/ha at £114.50/t

9.4t/ha at £119/t

Milling wheat

8.3t/ha at £126.50/t

8.7t/ha at £134/t

Winter oilseed rape

3.9t/ha at £285/t, incl bonuses

3.4t/ha at £290/t incl bonuses

Spring beans

4.2t/ha at £145/t

4.2t/ha at £145/t


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