FUTURE OFFERS OPTIMISM

1 June 2001

FUTURE OFFERS OPTIMISM

HOPEFULLY arable farming has now turned the corner. Prices that have already started to improve, due to shortage of supply, should continue to rise. World wheat supplies have fallen to their lowest levels since before 1985.

In the short term, with UK 2001 harvest predictions of 11-13m tonnes compared with a more normal 15-16m tonnes, it is likely that the UK will import wheat and it is known that millers are already doing so.

Prices are also likely to lift in the medium term. American hard wheat prices on the futures market are showing signs of a steady rise up to July 2003. Equating that back to euros/t, the price by the end of 2002 compared with the American futures market looks set to be around, or slightly above, 100 euro/t. Depending on the exchange rate that could mean wheat is worth £84-£93/t.

So there can be cautious optimism for the short and medium term.

In the long term there is bound to be continued volatility. As farmers trade at world prices it is logical to feel that over a 10-year period the price of wheat could well vary between £100/t and £40/t.

That means good marketing and securing prices on the futures market are going to play an even greater part in the farmers profitability.

There is also bound to be EU Policy change, with the emphasis moving to support of the community and not the commodity.

Modulation will start to kick in for all payments this season, with a 2.5% aid cut, which will increase to 4.5% in 2005.

A greater proportion of the EU budget will be spent on environmental policies and diversification through schemes that are being introduced in the England Rural Development Programme.

But it will still be as important as it always has been to continue to rationalise the farming business, to stay ahead of the game. A lot of what is in the Rural Development Programme would not excite the majority of farmers. But by 2003 it could be that the majority of farmers will be forced into carrying out various environmental schemes in order to obtain some form of subsidy payment.

There should be opportunities for young or entrepreneurial farmers who can find new ideas, exploit new markets and perhaps, also importantly, who can play the system with the ever-increasing burden of bureaucracy put on to farmers.

The basic principles for arable farmers will continue to be of major importance. Those are maximising yield, adding value where possible, optimising inputs and reducing overhead costs, but not to the detriment of yield and price.

Finally, and of increasing importance, is the need for increasing sundry income through diversifications and letting buildings, pony paddocks and the like. However, location will be a strong driver of this.

THE FUTURE

&#8226 Prospects improving.

&#8226 Crop commodity shortages.

&#8226 2002 wheat worth £84-£93/t?

&#8226 Volatile price – £40-£100/t.

&#8226 Marketing/futures vital.

&#8226 Aid cuts increasing.

&#8226 Enviro + diversification key.