Detailed costings help keep things on track

Detailed costings are at the heart of the AWSM Farming operation and these are constantly being refined to give better-quality information.

This helps decision-making, not only about operations on the owned, rented and contract-farmed land, but also for the farm contracting arm of the business.

“You have to have a good base for your costings, be realistic and include everything that should be in there,” says owner Adam Metcalfe.

“People will often claim they can do a job for a certain rate but, if you’re costing everything, that rate should often be higher than what is quoted.”

Costings at AWSM include a spreadsheet for every machine, to allow accurate costs an acre to be calculated for each operation. Fuel use is closely monitored with the job which fuel is used for entered into the computer when filling up.

Buying contracting business with low rates is something AWSM will not do and sticking to this rule has lost it work in the past. Each job has to cover not only the direct costs, including labour, fuel, depreciation, parts and finance, but also management time and admin overheads.

For example, ploughing with a Kverneland five furrow plough working 800 acres a year costs £27.73/acre. Covering 1,000 acres with the same kit brings the cost down to £26.72/acre (see table 1).

The treatment of labour costs is another example of Adam’s meticulous approach. Most of his employees average 60 hours’ work a week and in order to arrive at the true cost of an hour’s work on an operation, the costings must reflect the employee’s time spent getting to and preparing for that operation.

This means accounting for paid days when no work is done, such as annual holiday and bank holidays, travelling to and from jobs, refuelling and breakdown times, washing down and rest breaks as well as national insurance and overtime.

The impact of all of these on the true hourly rate of labour costs on operations is to effectively push them up by about 30%, says Mr Metcalfe.

For example, in a 12.5-hour working day, an average of 10.5 hours will be spent on the actual operation (see table 2). This pushes up the labour costs for a Grade 3 worker from the £7.66 hourly rate by about one-third to £11.43 an hour.

Mr Metcalfe and manager Andrew Yarrow are trying to refine these labour costs to account for further downtime such as wet days.

Once all direct costs are accounted for on each operation, a margin is applied to cover administration and office costs as well as management time, insurance, yard rend and a fitter to arrive at the true cost to the business of performing the task in question. This margin figure is checked annually and rarely varies from the current 20% rate.

Having detailed costings is also important when making investment decisions, particularly for replacement machinery, for example when assessing whether to replace two machines with one larger-capacity unit.

Cropping decisions

It has been a long winter with not an acre more drilled since Farmers Weekly‘s last visit in early November.

The effect of the past season and poor or non-existent drilling conditions on the arable outlook is dramatic, with final decisions on cropping having just been made.

“After our crop walking on Friday (1 March) it was decided to pull out 103 acres of oilseed rape and 17 acres of wheat. Everything else will be hopefully survive, but we have estimated that yields will be down by 24% on wheat, 14% on barley and 16% on oilseed rape compared to a normal year.”

Poor establishment, flood damage, frost lift and rabbit, slug and pigeon damage account for the expected yield reductions.

“Doing what we did has been a worthwhile exercise, as it has allowed us to budget the year ahead better and given us a realistic total crop yield so we have an idea of what we dare sell forward.

“We are going to put 377 acres of spring oats in to allow a first wheat to follow, otherwise our first wheat acreage will be down for harvest 2014. The rest of the spring cropping will go into 542 acres of spring barley.”

Fallowing is not an option, says Mr Metcalfe, because of the rent levels the business is paying.

The condition of the land has meant that contract work has been quieter, too – all staff have been kept on, but working far less overtime than usual.

“We have been doing maintenance work at home, but the extra winter work we usually do such as fencing just hasn’t been there, because no one wants anything on the land.”