Wheat price wont cover costs fgfgfg

21 April 2000

Wheat price wont cover costs fgfgfg

TWO out of three farmers wont cover production costs when selling wheat at £60/t, says Grant Thorntons Tom Chapman.

Figures from client data accounting for over 50,000ha (123,500 acres) show a break-even price of £55/t for the top 25% performers, rising to £73/t for the average and peaking at £92/t for the bottom 25%.

"Even if the price rose to £70/t, only half the businesses would cover costs," says Mr Chapman. "Results are alarming and underline the seriousness of the situation facing farmers today."

Most variation between performers lies in fixed costs, with a difference of £205/ha (£82.96/acre) between top and bottom 25%.

"Some businesses still carry too much permanent labour, so it is important to take advantage of retirement and other opportunities to reduce the workforce," he says.

Machinery should also be kept to a minimum, maintained well and its working life extended where possible. "Reconsider using machinery rings, contractors or some form of sharing agreement with neighbours to lower costs further."

Many businesses feel they have done as much as is realistically possible to cut costs, but those not covering their costs are simply eating into capital reserves, which is unsustainable, says Mr Chapman.

Do not fall into the trap of believing extra land is the panacea to all problems. Additional land may simply magnify existing losses, he warns.

"First priority is to get the existing businesses running as efficiently as possible." &#42

Wheat break-even prices (1998/99)

Top 25% Average Bottom 25%

ha (acre) ha (acre) ha (acre)

Yield (t) 8.22 (3.33) 7.73 (3.13) 7.41 (3.00)

Costs* (£)

Variable 252 (102) 261 (106) 269 (109)

Fixed** 348 (141) 452 (183) 553 (224)

Rent & finance 103 (42) 101 (41) 91 (37)

Drawings*** 135 (55) 135 (55) 135 (55)

Total costs 838 (340) 949 (385) 1048 (425)


Arable area aid 239 (97) 239 (97) 239 (97)

Set-aside aid (equiv) 32 (13) 32 (13) 32 (13)

Other income 118 (48) 116 (47) 93 (38)

Net cost 449 (182) 562 (228) 684 (277)

Break-even price £55/t £73/t £92/t

*Costs and set-aside payments spread over entire productive area.

**Assumes depreciation, included in fixed costs, equals HP payments and machinery reinvestment. Above figures can be treated as actual cash costs.

***Drawings typically £134/ha (£55/acre).

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