Outlook 2014: Combinable crops

Much improved physical crop prospects are in store for 2014 compared with the season just finished. The dry summer and good autumn provided a degree of natural soil repair and allowed growers to undertake remedial cultivations and create good quality seed-beds relatively cheaply, says Andersons partner Sebastian Graff-Baker.
Repairs to balance sheets may take longer, he adds. “For many businesses the full impact of the relatively small 2013 harvest and lower-than-budgeted prices will only be seen over the next few months as cash flow comes under increasing pressure and the financial analysis of harvest is completed,” he says. “Many businesses are having to address the funding of working capital in a much more organised way.”
Financial prospects for the 2014 harvest have been helped by the reduction in fertiliser price; ammonium nitrate at the time of writing (November) is priced at about ÂŁ273/t (NB UPDATE NEEDED FROM SUZIE) compared to ÂŁ305/t a year ago.
“Against this must be set the fall in grain prices,” says Mr Graff-Baker. “The futures price for November 2014 stood at £156/t in mid December, down from £179/t a year ago. We cannot tell how this will change, but if there were another big global harvest like 2013, then prices would be expected to weaken further.”
However, UK farmers may have more grain to sell, with a rebound in the combinable crop area and perhaps even be a record acreage of wheat. “With more than usual being first wheats, growers could harvest a big crop in 2014. The UK is too small to move global grain markets but a return to being a net exporter will affect domestic pricing.”
Key points
- Better outlook for crops in 2014
- Grain prices down but more to sell?
- Balance sheets will take longer to repair
- Address funding of working capital
- Prepare budgets and construct appropriate selling strategy
- Review operating costs
No one can predict future prices, so a sensible selling strategy must be based on a prediction of production costs and available prices via the futures market, he advises. “Growers should prepare budgets for both 2014 and 2015 harvests, identify the price at which they can generate the required profit and consider committing a safe percentage of anticipated yield when the price is at or above that level.”
Some tenders for Farm Business Tenancy (FBT) rents today exceed ÂŁ250/acre for combinable crop land. At current crop prices these figures must be questionable, he says. Too often there is a lack of clarity regarding the financial consequences of business expansion on the core/underlying farm business.
Mr Graff-Baker believes most combinable crop businesses should have operating costs no higher than £100-£125/t to meet the proprietors’ requirement for profit. As a guide in terms of turnover (including straw and subsidy), rent and finance or rental equivalent should be no more than 25%, labour and machinery 25-30%, direct costs 20-30% and sundry and other overheads 5%.
“For many, simply identifying the underlying contribution from combinable cropping activity to the overall business profit is essential to highlight the need, if any, for improvement,” he says.