Costs of production marching upwards

Nervous optimism would sum up the mood at Cereals last week. Everyone there was pleased to be back at an event which, for arable farmers, has replaced the Royal Show as the one they must attend.

The site was relatively easy to access with few people queuing to get into car parks for more than 20 minutes – a big improvement on recent years. And there were rumours that negotiations are already taking place with a view to making it the permanent venue.

But some of the grain price-based ebullience of a few weeks ago had been tempered by the drought – disastrous in some regions but not so bad in others – together with the dramatic decline in those crop values because of rain across Europe and the lifting of the Russian export ban. All over the site, cereal growers were getting text messages on their mobile phones telling them the futures market had dropped £5/t since they left home and another £3/t later in the day.

That news might have delayed plans by some who had intended ordering new tackle for next season, especially those who had sold rather more grain forward than they now expect to harvest. My own view is that the £30/t+ wiped off values in recent days is an over-reaction to inadequate rainfall that came too late to do much good and that the market will recover to previous levels, if not higher. Please note – that is not a forecast, just an opinion.

Despite the volatility and weather risks, however, it was interesting to hear Allan Wilkinson, head of agriculture at HSBC, confirm agriculture as the banks’ preferred sector. And it wasn’t just because of the rising price of land providing collateral. It was because, relative to other industries, ours is stable and looked – on the basis of authoritative forecasts – set fair for a viable future.

He was referring particularly to Sir John Beddington’s Foresight report warning of risks to food security posed by increasing world population. NFU president Peter Kendall was less sanguine about the future. It was the day before he was due to attend the so-called “G120 global farming summit” in Paris, called by the French to debate the challenges that lie ahead.

Clearly rehearsing what he would say there, he said UK farmers were up for the job of producing the food required “provided they are not tied up in green red tape”. Farmers must be freed from unnecessary regulations that were inhibiting productivity and competitiveness, he said. He accepted the probability that the CAP budget would be cut significantly after 2013 and that this would lead to smaller SFPs. But if the EU funded research and encouraged innovation instead of imposing yet more restrictions on our industry, we could accommodate smaller SFP.

Overhanging the entire event was the vexed question of increasing input costs. Chief among them was the rocketing price of fertiliser, closely followed by those for agrochemicals, diesel, electricity and, of course, seed, based on the rising value of grain and the likelihood of lower yields and quality this year.

As consultants, Andersons, pointed out, the breakeven cost of growing wheat is rising fast. Last year it was £118/t; this year, based on calculations made last autumn, £122/t.

With anticipated yields well down this year, that figure will surely rise and be ratcheted up another notch in 2012.

Significantly, according to figures derived from Anderson’s clients, the best cost of production figure is £106/t and the worst £166/t – or worryingly close to current values.

David Richardson

David Richardson farms about 400ha (1,000 acres) of arable land near Norwich in Norfolk in partnership with his wife, Lorna. His son, Rob, is farm manager.

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