Not so straightforward

3 January 1997

Not so straightforward

PRACTICAL considerations have become more significant as the range of gross margins for spring sown options has narrowed. That sums up views from several sources.

Malting barley still seems to offer the best return. But it carries a relatively high risk unless growers are sure of achieving malting quality. Premiums are down by about £10/t on last year and contract base prices are lower because of the drop in feed grain prices.

"The gross margins of break crops and cereals are very similar, so it is important to look at the percentage of breaks to maximise first wheats the following year," says Sentry Farming managing director, Andrew Mason.

How a crop fits in with the farms system, harvest timing, labour and machinery requirements and storage capacity becomes more important when margins are similar, he suggests.

"Choice will also depend on the growers own interests and agronomy skills." There may also be marketing issues with which growers taking on new break crops may not be familiar, bringing another element of risk.

Recent strengthening of sterling and potential for further revaluations will affect UK competitiveness as an exporter, says ADAS business management consultant Andrew Fraser. "Growers could alleviate this uncertainty by fixing prices in advance with forward contracts.

Drought-proof income

"If a commercial break crop is grown, a decision has to be taken as to how much of its income is drought-proofed by area aid. If drought is not expected then the decision may be to go for a high value break crop and achieve a premium for human consumption," reckons Mr Fraser. "Break crops have advantages over cereals for following crops, including reduced disease burden. Pulses leave residual nitrogen and the deep rooting system of oilseed rape improves soil structure."

"There is little to choose between combineable break crops," says farming consultant Rachel Potter of Strutt & Parkers Newbury office. "This is particularly so if you take account of a possible reduction in the oilseeds aid payment due either to high oilseed prices, or to an overshoot of the maximum guaranteed area. Linseeds late harvest can also be a drawback," says Ms Potter. When considering crops new to the farm, it could be prudent not to allow one on a relatively small area to demand a disproportionate amount of management time.

Practicalities like storage capacity and ability to keep lots separate need checking. "Crops which can be stored with winter varieties of the same type will reduce management input at harvest and also reduce the need for separate additional storage," says Mr Fraser.

"You need to go back through previous records to see what a field will provide," he adds. "Harvest schedule is important, but most farms have overcapacity in terms of combines and harvesting facilities, or they could get a neighbour in to help out."

Turnip rape

Dalgetys David Neale expects significant areas of turnip rape will be sown to patch up winter rape already suffering from poor establishment and pigeon damage.

"Spring beans may come under more pressure this time because we have had two poor years on both yield and value." But Mr Neale believes prospects for peas are better, particularly with the first wheat entry they provide. With set-aside down to 5%, he questions whether many growers will wish to get involved with industrial cropping, given the margins and management input for what is a relatively small area on many farms.

"The market is not very bright – there is no political initiative here, and people have got used to managing set-aside in their rotation."

"The economics of industrial crops, particularly linseed, are very marginal," says Ms Potter. "But it is particularly important to check set-aside areas this year. The margin for error is much less with 5% set-aside, as each acre of set-aside supports a much larger area of eligible arable crops than last year."

She suggests that growers aim to improve gross margins by opting for a premium market. "Seed contracts can add £100-£150/ha," she says.

Echoing the warning to check figures carefully, David Bolton, of farm business consultant Andersons, advises those choosing industrial crops on set-aside to make sure their paperwork is in order. Contracts must be signed and returned before drilling starts, otherwise area payment may be jeopardised.

"The industrial oilseed rape gross margin is only attractive if marginal fixed costs are also low. It exceeds set-aside by an amount usually enough to cover the extra fixed costs incurred. But if it is going to cost you £140/acre to earn the extra £130 in area aid, then there is no point in doing it."

Mr Bolton says the small gross margin difference between peas and beans should be treated with caution, and warns that spring beans are unsuitable for drought prone lighter land.

"Pea combining comes well before beans. Yield potential is higher, though it can be threatened by wet weather during flowering and harvest." There is also scope for substantial premiums for human consumption varieties. &#42

Lower cereal prices mean choice of 1997s spring crop is less straightforward than last year. Beginning this special focus, Suzie Horne gauges industry opinion. The following pages cover variety views and seed treatment options. Edited by Andrew Blake

Malting barley remains a good bet this spring, but added value contract-grown break crops, like peas and beans, could prove rewarding.

Gross margin estimates for spring crops in 1997 – £/ha







Strutt & Parker771597724652454656386642643



*From different sources.


&#8226 Range of margins narrowing.

&#8226 Barley still best potential.

&#8226 More focus on practical aspects.

&#8226 Industrial crops questionable.

&#8226 Consider premium contracts.

&#8226 Check paperwork is in order.

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