Tough decisions must not be ignored – Andersons

Cereal production should be profitable for the next two crop years but this leaves no room to put off decisions large or small, farm business consultant Andersons warned at Cereals 2011.

“Faced with better output prices and profits it will be tempting for many UK cereals businesses to make little or no change – simply because they don’t have to,” said partner Richard King.

“But this would be to miss out on the opportunities currently available to secure even better profits.”

Collaboration on machinery and labour to achieve lower production costs should be seriously considered but there was a danger that current profitability would tempt those who should be looking at this to put it off.

Mr King urged farmers not to shy away from tough decisions. They had an almost pathological hatred of paying tax and there would be a temptation for some to overspend on machinery to avoid this, saddling the business with high costs which would be hard to bear in a downturn, he warned.

Others would pay too much rent to secure additional land and costs were also rising through recent rent increases on existing tenancies.

Mr King made the comments as he discussed projections for Anderson’s 600ha model Loam Farm.

“A big hike in costs has come about because some of the rented land on Loam Farm has come up for renewal,” he said.  “The new rent has been agreed at much higher levels on three year FBTs – in line with market realities.  This illustrates how a profitable season or two can build cost into an arable business, which it then has to live with for a number of years.”

Loam Farm details:

Andersons’ Loam Farm model, a notional 600ha (1,483 acre) top third performing farm on half rented and half owned land, is forecast to make a margin of £97/ha (£39/acre) before SFP and ELS income from this year’s harvest, compared with £83/ha (£34/acre) from the 2010 crop. This is after a negative result in 2009.

However, the same measure for harvest 2012 sees the margin drop to £78/ha (£32/acre) on the back of higher costs and nitrogen prices have already risen higher than the £300/t figure used in the Loam Farm 2012 budget.

Loam Farm will produce wheat for about £122/t this year but Mr King said that this is very sensitive to final yield compared with the budget yield.

Feed wheat budget yields for the figures above are 8.60t/ha (3.5t/acre) for 2011 and the weather will probably reduce these, while 8.80t/ha (3.56t/acre) is in the 2012 budget.