Cereals farms will lose money on their 2019 feed wheat crops without subsidy, according to the latest edition of the ABC costings book, compiled by farm business consultant Andersons.
The guide, designed to help farmers and managers budget, puts feed wheat production costs at £152/t once all overhead costs including rent, finance and unpaid family labour are accounted for.
Cost of production before rent and finance is £121/t for first wheats after a non-cereals break crop. This is based on an average yield of 9.1t/ha, producing a gross margin of £823/ha.
The only other cereal gross margin approaching the £800/ha mark is winter wheat for milling, at £797/ha, based on an 8.65t/ha yield and a selling price of £160/t.
For second and continuous feed wheats yielding an average of 8.2t/ha (slightly higher than the national average), the income from a £150/t crop is £1,230/ha.
With total costs including rent and finance estimated at £152/t, this puts these crops into a £16.4/ha loss before BPS.
New crop feed wheat prices have recently risen to around the £150/t average used in these budgets, on the back of fears about prospects for the US maize crop, with harvest values at £147-154/t ex-farm, while grain for November movement was worth £154-157/t as Farmers Weekly went to press on Wednesday (29 May).
Fixed costs are calculated for small, medium, large and very large farms in each sector.
Small (up to 200ha) and medium (up to 350ha) cereals farms are estimated to have total fixed costs averaging £835/ha, while large cereals units (350-500ha) are at £780/ha and very large (larger than 500ha) at £715/ha.
“The lack of profitability without subsidy raises some uncomfortable questions about what the post-Brexit prospects for farming might be,” said Richard King, editor of the ABC book and head of business research at Andersons.
With area payments in England to be phased out and replaced by land managers being paid for providing public goods, there will be far less profit from these new payments, said Mr King.
“The industry faces a period of significant adjustment if farming profit is to be improved enough to replace the lost subsidy.”
Until more is known about the new system, farmers need to focus on the areas they can influence such as how they structure and run their businesses, he advised.
“If they are as efficient as they can be, then they will be in the best position to weather whatever politics or economics throws at them.”
For the time being, the continued weakness of sterling in the face of political uncertainty is helping UK competitiveness, said Mr King.
The costings assume an orderly exit from the EU. If no deal were to result, the effect in the farming sector would be significant and not for the better, he warns.
He also draws attention to important challenges for agriculture that are being overshadowed by Brexit: adaptation to and mitigation of climate change; the implementation of technology; renewal of the farm workforce; and increasing productivity while protecting the environment.
- The costings series covers all main enterprise types and includes sensitivity tables to show the variation in gross margin at different yields and input rates.
- For dairy farms it uses a milk price of 27-28.4p/litre depending on system. In this sector the ‘lumpy’ nature of fixed costs is clearly illustrated. For example, for a small (up to 70ha) dairy farm fixed costs are put at £1,655/ha, for medium units (70-110ha) at £1,705/ha, while the jump to a large unit (110-160ha) brings a further rise in fixed costs to £1,830/ha. It is not until a unit has more than 160ha that fixed costs fall, in this case to an estimated £1,725/ha.
- The fixed costs in the series are based on actual costs collected through the Farm Business Survey, the national farm costings service run by six universities with agriculture departments. More than 2,300 farm businesses in England and Wales take part in the FBS survey annually.
- BPS outlook – the ABC book estimates the English lowland BPS rate for 2019 at €261.6/ha. At the exchange rate on Wednesday 29 May of 1 euro = 88p, this would deliver a payment of £231.20/ha.
- The book, now in its 88th edition, is revised every six months.