Arable finances: What to consider after tough winter

Arable farmers with undrilled or poorly performing winter crops should consider fallowing marginal land to ease cashflow problems, say farm advisers.

With more spring crops expected to be planted across the UK this season, prices for barley and oats are likely to be poor, making it hard to justify planting a crop in low-yielding land, said Paul Waberski of farm advisory firm Brown & Co.

The challenging winter will have accelerated hard decisions all businesses will have to make in the coming years, with declining subsidy incomes and increasing weather volatility reducing the viability of cropping the poorest section of a farm, he warned.

See also: Advice for farmers who are struggling to pay their bills

“Farmers need to sit down and do some honest figures and fight the natural urge to get drilling as soon as the soil will carry a machine,” he said.

“[Many] could run the risk of simply turning over money with little or no return.”

Mr Waberski, who is based at Melton Mowbray, in Leicestershire, said some farms in the area still have nothing drilled, with even the least-affected only having about 40% of what they planned to drill in the ground.

Arable farms would be less exposed to risk if they put land that is persistently poorly performing into an environmental scheme, deriving a guaranteed income from it.

Reducing the cropped area will also free up some businesses to be more creative with machinery sharing agreements, helping to cut costs further.

Early communication vital

Philip Dolbear, AHDB Cereals and Oilseeds knowledge exchange manager for south-west England, said that early communication with banks was vital for businesses that were facing financial difficulties.

He said that despite significant uncertainty remaining in how the season would play out, it was well worth farmers updating budgets and cashflow forecasts for the year.

A credible sensitivity analysis of key figures such as crop yield and predicted price would give banks confidence that payment terms could be satisfied with a range of scenarios.

Business owners who need extended overdraft terms will improve their chances of gaining approval if they can show they understand the duration of the cashflow problem, rather than having to go back each month for additional funds, he said.

They should also be able to explain how they plan to recover their financial position by reducing debt in the longer term.

A clear grasp of all the relevant figures is essential, and he advised speaking to accountants and farm consultants ahead of the meeting if needed.

Arable financial health check: 11 things to consider

  1. Is your budget and cashflow forecast up to date? Calculate how much crop you have left to sell before harvest and how much you are likely to spend.
  2. If you will need additional finance from your bank, this should be communicated early, with a clear plan for how you foresee your financial position recovering in the longer term.
  3. Communicate with staff. If they understand the scale of the challenge, they are more likely to take ownership of it. Consider performance-related pay for key individuals in key areas.
  4. Look at what purchases/capital expenditure can be delayed for a year. Do you really need to replace that piece of kit? Will yours last another year or does a neighbour have one you could hire or use them as a contractor?
  5. If loan repayments are putting cash strain on the business, ask if you could have a capital “holiday” for 12 months, paying only the interest.
  6. With machinery on hire purchase, there may be the option to extend the payment term over a longer period to reduce the instalment size.
  7. Do you have any kit that is no longer required that could be sold?
  8. What is your debtor situation? Who owes you money and can this be improved?
  9. Are you sourcing your inputs in the most economical way? Should you join a buying group to try to ensure this?
  10. Review crop marketing strategy. Are you losing confidence that you will be able to honour the terms of forward-sold crop contracts? Should these be purchased back or rolled over to the next season?
  11. Have you started to consider how your business will cope with declining BPS payments from 2021? Any strategic planning to make the business more sustainable will not be wasted.

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