Predict peak borrowing with cashflow scrutiny

Many arable farmers need to keep a close eye on cashflow and manage it carefully, despite a kinder harvest.
Arable profits are set to edge up in the 2013 harvest year thanks to better-than-expected combinable crop yields, but in most cases this will help the bank balance only marginally.
Cashflow projections continue to reflect the legacy of the wet 2012 harvest and autumn and this is shown on Brown & Co’s whole-farm budgeting model, Brown’s Farm.
This is based on a typical eastern counties arable unit, growing 420ha of winter wheat and barley, winter oilseed rape, sugar beet and combinable pulses, where 260ha is owned and 160ha is on an FBT.
When the farm’s first budget for the 2013 harvest year was drawn up, a peak borrowing requirement of £325,000 in July was predicted, falling to about £130,000 by the March 2014 year-end.
This changed dramatically when a spring 2013 update took in the effect of 2012’s wet autumn and winter, taking the maximum borrowing requirement up to £450,000 in September and the revised year-end overdraft to £248,000.
This autumn reveals a slightly improved picture – better-than-expected wheat yields on heavier land and good grain quality, reduced drying costs, improved pulse prices, better sugar beet receipts and a more favourable SFP exchange rate outweighed the reduction in oilseed rape values and a hefty rent increase (see table).
Overall, profits are expected to rise by more than £17,800 to £50,000. This represents a 40% recovery since the last review. However, the peak borrowing requirement for September is still £432,000 in the same month and at the year-end the overdraft is at £230,000, so the effect of 2012’s wet autumn amounts to £100,000 extra on the overdraft.
To avoid additional borrowing, a decision was taken to sell the peas in September, a month earlier than planned, pulling in £44,400. Fertiliser purchases worth £52,500 had already been deferred from July to October. These measures reduced the peak borrowing requirement to about £350,000.
Many farms have yet to rework their budgets so they can anticipate problems well in advance.
A reactive approach costs money in the long run. A proactive approach, however, allows sales and input transaction dates to be juggled to match the new income streams and effectively manage cashflow once the peak is identified.
The 2014 crop budget shows a slight improvement in margin compared with this year and a £9,000 increase in positive cashflow.
Positives Pea price increases to £300/t Heavy land wheat yield up 0.5t/ha Savings on drying costs Spring bean price increases to £220/t Sugar beet price up to £28.01/t Single payment of 86p/€ (hedged spring 2013) Negatives Rent review increase (first payment due October) OSR price down to £350/t Extra profit Source: Brown & Co
Key revisions to 2013 harvest budget £8,880 £7,030; £6,000 £5,760 £4,050 £2,209 (£10,000) (£6,100) £17,829