Contract farming results improve but 2013 brings challenges

Total income on Bidwells’ contract farming agreements rose by £130/ha (£52/acre) to £1,465/ha for the 2012 harvest, despite the difficulties of the season.


Farmers and contractors on many holdings saw a year of sustained or even increased profits, said head of agribusiness Jonathan Armitage. However, many of those with only combinable crops on heavier land struggled hard as yields and grain quality both suffered.


Net profit after deduction of the contractor’s charge for operations increased by about £50/ha in 2012 to £669/ha.


Much of the increase in income for the 2012 harvest is attributed to the sharp rise in ex-farm prices for wheat and oilseed rape after harvest.


Variable costs rose by 17% for the 2012 crop, with fertiliser costs rising by £36/ha to £193/ha, but lower than the £212/ha peak of 2009.


The 80 farms in the Bidwells’ series spent £30/ha more on spray costs in 2012, with repeated attempts to get spring fungicides on to crops accounting for much of the increase. Seed costs rose slightly to £69/ha.


bidwells-table


Contractors’ basic fees for establishing, managing and harvesting crops are virtually unchanged at £237/ha, while contractors’ share of profits remained at a similar level to the 2011 results at £236/ha.


“As terms are reviewed, it is noticeable that while contractors’ total returns have stabilised, farmers’ returns have begun to grow. The average prior charge – the farmer’s first share of profit – increased slightly in 2012 but their share of remaining profits grew by about £10/ha,” said Mr Armitage.


Average total returns to farmers in these agreements grew by £12/ha to £397/ha.


“Improved returns from farming and rising land prices will increase income expectations and we expect the terms of many contract-farming agreements to be scrutinised carefully at renewal,” said Mr Armitage.






Learn from 2012 aftermath


Managing the legacy of 2012 will challenge many businesses, affecting both financial and physical performance, warns consultant Bidwells.


Soil structure and seed costs, seed availability and quality were likely to be among the key issues in the results of both the 2013 and potentially the 2014 harvest, said head of agribusiness Jonathan Armitage.


Estimating yield was another challenge and this was showing in the increasing number of contracts being offered for the produce of a set acreage rather than for a certain tonnage, in particular for oilseed rape.


The quality of relationships in contract farming agreements is key, as contractors’ costs rise where crops have failed and redrilling has been necessary, resulting in negotiations to cover these extra costs.


Agreements will also have to take account of some of the costs of remedial work such as mole draining recover soil structure, said Mr Armitage. Rather than loading this on to one year’s costs it could be spread across, say, five years, he suggested.


Many growers were caught out by early grain sales at about £150/t last season, a price which at the time looked attractive against their budgets.


“One year later we are at £175/t for harvest – that’s about as high as it’s ever been pre-harvest and this far from harvest. It makes sense to fix some of the crop although we have to be cautious about estimating yield,” said Mr Armitage.


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