Rebuild rotation around a fixed cost structure
Rebuild rotation around a fixed cost structure
Thoughts are turning to next years crops and, for many,
how to return to profit. But the answers will not come
from a quick fix it seems. Minor tweaks to rotations with
a long-term look at the logistics and fixed costs is the
answer. Andrew Swallow reports
HOW do you rebuild returns after the worst 12 months of arable farming in living memory?
An initial reaction may be to plant more wheat. Indeed, the arguments for that can be made to sound convincing.
Wheat is the highest margin combinable crop. Forward prices are up 20% and there is talk of further rallies. Many growers have an un-precedented amount of land available for first wheat. New seed dressings can cut the yield penalty of second and third wheats dramatically.
But agronomists, advisers, and grain traders are warning against such a knee-jerk recovery plan. Logistics, agronomy, storage and marketing mean a more long-term return to sensible rotation is needed.
"Purely on a gross margin basis it is quite clear first wheat is preferable to oilseed rape or set-aside," says ADAS senior consultant David Parish. "Even with wheat at £60/t and oilseed rape at £125/t the wheat margin will still be £70-£80/t better.
"But you have got to look at all the other factors that impinge on that decision," he says.
With more set-aside this year, establishing more wheat than normal next autumn is unlikely to be a problem. But workload bottlenecks will come with spraying and spreading in the spring, and especially combining next summer, he warns.
"The decision to drill more wheat has got to be looked at dispassionately from a logistical point of view. Can it be managed without dropping the overall performance of the crops?"
Added to that, growers must think of the knock-on consequences. "More wheat next year will concertina the workload in autumn 2002. Sowing some oilseed rape instead this autumn has the big advantage that it will give you some land that can be cleared and cultivated early, ready for wheat next year."
Using this years set-aside to establish oilseed rape early should be considered. "The key to growing good oilseed rape is even establishment and that is difficult after wheat if we have a late harvest.
"Also many wheats and even barleys were mauled in last autumn. Is that the most appropriate place to be planting a compaction sensitive crop like oilseed rape? Will you have time to do the necessary remedial soil cultivation work?
"If you are going to struggle then maybe some of the oilseed rape should follow set-aside. The other thing is that a second year break crop can be very beneficial in controlling brome and blackgrass."
While the early entry opportunities of set-aside would be wasted on beans, that crop should not be dismissed from the rotation either, he continues.
"Beans will match the margin of rape on many farms. The downside is the late harvest, but the drilling window can help them fit in – they are a better crop from a grass weed management point of view." (see panel.)
Cashflow is also kinder, which could be crucial next year, he adds.
"This spring, with more set-aside and spring sown crops there has been less to spray and cashflows are better than forecast. But as we get into the autumn we will have less crop to sell and a high cash demand."
A cash hungry rotation of wheat and oilseed rape may be the right long-term decision on gross margin and logistical grounds, but budget busting cashflow deficits will need explaining to bank managers. That is best done sooner rather than later, he says.
Rising commodity markets will help support such discussions. But senior Glencore Grain trader Robert Kerr urges growers not to get carried away with the short-term bullish sentiment.
"Our fear is that there will be wall-to-wall wheat next year and we could be looking at an 18m tonne crop in 12 months time," he says.
"That has huge price implications for the following year. I believe budgets for that crop should start with a seven and end with a nought, ie £70/t."
While UK ports are capable of shipping such a massive surplus – UK demand for domestic wheat is stable at about 12m tonnes a year – the export campaign in autumn 2002 would need to start early and continue steadily throughout the year.
"If we do not get moving in September and October we could be really up against it," he warns. Any hiccup and carry-over stocks from harvest 2002 are possibile.
Added to that, suggestions that world wheat markets will rocket are overdone.
UK wheat futures have leapt up from the nadir of last October. But during the same period US wheat markets have fallen, he says. Eastern European crops are looking good and for the short-term at least domestic values have hit a genuine ceiling.
"Farmers that only want to look at the bullish picture should look at the world market. I am not saying it will not take off. It could. But there is a world of difference between the $240/t high of April 1996 and the $106/t we have today."
Forecasts of the Organisation for Economic Co-operation and Development support his argument. In its annual Agricultural Outlook report the Paris-based body predicts a world wheat price of about $148/t, up from $110/t in 1999-2000, but still below the average in 1995-1999.
If growers do go for more wheat in 2001/2, what will follow for 2002/3? More second wheat or more break crops is the likely answer, suggesting a boom-bust cycle of returns.
New seed treatments may ameliorate take-all effects for some. But Mr Parish stresses logistical arguments must come first when rebuilding the farm rotation.
"Farms have a given cost structure and cropping has got to be tailored to that cost structure. On most farms it has already been trimmed to the bone and no change in cropping can be considered without reviewing the fixed-cost implications.
"For most businesses more wheat will not be the right thing to do from a logistics or management point of view.
ROTATION REBUILD
• Match crops to combine capacity.
• Caution with wheat increases.
• Check storage capacity.
• Oilseed rape returns poor, unless more than 3.7t/ha (30cwt/acre).
• Beans better bet for workload, weeds and margin?
• Using contractors? Set-aside/wheat an option.
• Growing OSR? Grow industrial on set-aside too.
• Use barley as OSR entry.
• Calculate own farm gross margins.
• Balance with logistics & fixed costs.
What if?
It is hard to imagine how the 2000/01 year could have been worse, with awful weather and record low commodity prices. But just think where we might have been without set-aside as an option, says David Parish. "Thank goodness for IACS payments. At least we are getting something for set-aside. We would have got nothing 10 years ago.