Opinion: Risk management just as important as grain yield

Harvest 2019 is producing some bulging yields. Even my fellow columnist, farming on the deserts of Essex, has openly confessed to optimistic numbers on the combine yield meter.

Farmers up and down the land are boasting barn-filling feed barley results, whopping wheat numbers and overflowing oat yields.

See also: 6 ways arable farms can reduce business risk

Machinery dealers’ telephones are red hot. Farmers are rushing to place orders for the latest shiny piece of kit, spending the hard-earned bonus that good growing conditions can reward.

Save for some challenging harvesting weather, all is good in the arable world.

Or so it would seem.

If last Wednesday (7 August), I had sold wheat for October 2019 delivery, I would have been paid £134/t. On that same Wednesday a year ago, for October 2019 delivery I would have been bid £162/t.

Or to spell it out another way, 50ha of barn-busting wheat, yielding 10t/ha, sold last week, would give me the same amount of cash in my pocket as a paltry 8.2t/ha committed a year earlier.

The most sobering part of this exercise is the disproportionate amount of time and money British farmers invest in machinery and inputs to try to positively influence marginal gains in productivity.

British farmers spent almost £2bn on farm machinery in 2017-18 – an average of £36,200 a farming business. Estimated spend on risk management was less than £1,000 a farm business. 

More than 50% of Australian farmers insure their crops. In the US that number is closer to 90%.

The latest reform of the CAP offered EU member states the possibility to use rural development funds for financial contributions to insurance premiums.

The UK chose not to make use of the risk management toolkit.

The psychology that sees 80% of farmers using a three- or four-spray fungicide programme to cover the risk of disease in wheat, yet less than 4% investing in tools to cover market risk needs serious attention.

New Zealand specialist ag-consultant Pita Alexander’s advice is straightforward: step one, leave your iron disease (vehicle and plant desires) in the dealer’s yard; step two, adopt financial hedging to minimise loss.

That’s not all. If it weren’t for the threat of a no-deal Brexit devaluing sterling, the wheat price would be hovering closer to £125/t for19 October delivery.

A recent survey by the NFU revealed that less than 6% of Basic Payment Scheme recipients opted to receive their payment in euros. Bluntly, farmers like hedges, not hedging.

Yet, unlike challenges such as blackgrass or flea beetle, time and money invested in risk management can offer tangible returns.

Tools are readily available, and cheaper and easier to use than they were five or 10 years ago.

Companies such as Stable have developed a user-friendly risk management platform to “help businesses protect themselves against volatile commodity prices”, while Lycett’s crop shortfall insurance allows farmers to commit tonnage without the risk of defaulting. Both offer alternatives to pools and traditional options.

Defra’s post-Brexit no-deal planning should include mitigating market volatility.

Former Defra secretary Michael Gove was averse to government hand-holding, encouraging his civil servants to come up with support measures that enabled farmers to help themselves.  

I can’t think of a more timely opportunity for the new secretary of state, Theresa Villiers, to promote and train farmers in risk management.