A testing time is ahead for UK farming, predicts consultant Andersons.
A stark budget outlook in its latest ABC farm costings book suggests a £143/t cost of production for feed wheat next harvest before unpaid family labour. This compares with harvest 2015 prices currently in the region of £125-135/t.
The unpaid family labour normally paid for from sole trader or partnership profits adds almost another £12/t to production costs, says the firm.
See also: Feed barley values close on wheat
The figures above are based on a “good commercial average” yield of 8.9t/ha for first feed wheats, compared with Defra’s estimated average yield this year of 8.6t/ha and the UK five-year average of 7.4t/ha.
“Particularly in the arable sector I’m not sure the prospects for next season have quite been taken on board, or even the run out for this season,” said Richard King, head of research at Andersons.
2015 outlook advice
Measure performance to identify weak areas and the scale of change needed
Don’t assume volatility will make things right
Cost unpaid labour and rental value of land
Assess family labour – is it used efficiently, could it be earning more reliable and less volatile income off the farm?
Beware impact of drastic changes on fixed cost structure
Despite recent price gains, the extra yield from the 2014 harvest would not make up for lower sales income, he said.
Across combinable crops, sugarbeet, dairy and many meats, limited reductions in inputs costs have not been enough to make up for the slump in output prices and currency values increasingly affecting financial performance.
While the whole industry was feeling buffeted by volatility, it was dangerous to assume that because there has been so much movement both ways, this would be repeated and that things would “come right”.
“Higher prices are not guaranteed and this approach could be eroding the business in the meantime. The pattern has been to get bigger and take on extra land but that can be a treadmill,” warned Mr King.
The costings book figures should be used as a starting point only because of the varied structure of farm businesses. Producers needed to look at industry averages to see where their costs and performance were out of kilter, and to identify the scale of a problem and whether drastic changes were needed.
“Some people have had a couple or even three good seasons so there is perhaps some buffer. But if there is a bad 2015 then you could see net worth being eroded,” he warned.
The costings show that for harvest 2015, winter feed barley yielding 6.75t/ha and selling for £115/t loses £32.3/t after accounting for single farm payment income. Winter oilseed rape at 3.6t/ha and sold for £260/t loses £35.20/t on the same basis.
Better prices in recent past seasons had triggered some big investments in arable machinery and rents, those costs would be there for a while.
Across all sectors, family labour generally needed to come under more scrutiny, both in its cost and how it was used, he said.
“Almost without exception farmers don’t account for their own labour. If it was more closely costed and assessed, it could be more focused.”
For example, it might better that some family members worked full- or part-time off the farm to allow causal, contact or specialist labour to be used more efficiently. Non-farming income was also potentially more reliable, even if it was part-time.
Radical measures would be needed on some farms – a move to a contract farming agreement or increased use of contractors were options to reduce costs, as long as the impact on fixed costs was fully understood. Letting land for maize or potato production was also an option for some.