Ready, steady, g…

16 February 2015

Although it’s raining today as I write this, the last month or so has been pretty kind. The ground has drained. Pigeons have had enough forward crops to check without destroying the more backward ones. Despite the forward crops, disease levels being carried are modest. Machines are serviced. The rush of technical meetings post shooting season is starting to subside.

I have seen the first ploughs and cultivators out, though the ground at 2 degrees is still a little way off spring barley drilling. However there is a sense of anticipation that the next growing season is truly ‘round the corner’.

But what is the prognosis to make any money out of it? The CropBench+ benchmarking meetings we have held over the last two months have revealed some scary costs of production for the 2014 crop. Many of these costs will be the same for 2015 – and well above the current market and forward prices.

It is important not to forget the contribution to these costs from subsidy, straw sales and environmental schemes as well as the grain sales themselves. However it is important not to be complacent in driving down costs of production

Should one wait and hope, or sell now and ‘cut the losses’? The answer is different for everyone of course.  There are some mitigating actions that can be taken though. Look out for some handy tips in the next Grain Outlook.

Yield is a major factor. A field average of 9t/ha could hide some areas yielding  6 or 12 tonnes!  Are the former in the same place each year? If so why? Can the problem be corrected economically?

If labour, power and machinery costs are the challenge, and they often are as a major element of costs of production, have they truly been analysed to check for  savings or another ‘way’  found of growing the crop. Machine hire, sharing, contracting? It is important to know a sustainable target (year on year accounting for volatility) for the arable business to contribute to profitability. £370 per hectare including labour, power and machinery is an oft-used target.

In some situations, there may be few alternatives and especially if high rents come into the equation too, serious questions must be asked as to whether it is right to be growing crops.

I mentioned trends earlier, and it is important not to act in haste and repent in leisure. Likewise, although rape is under pressure as a break crop in the rotation (on agronomic and financial criteria) the benefits to the whole rotation compared to alternatives need to be weighed up.

Some may be achieving cash neutrality or even surplus by virtue of the benefit of not paying rent, having old and/or paid-for buildings, or taking less management remuneration. However I would challenge all to consider the value of their capital employed, the value of their time, balanced with lifestyle and seek a good, even a challenging return on capital. 10% would be ‘handy’!

PhilipDolbear

PhilipDolbear

Taunton-based Philip joined AHDB Cereals & Oilseeds from HSBC Agriculture, where he was Senior Agriculture Manager in the South West region. Having studied agriculture at university, Philip spent seven years as a Senior Business Management Consultant with ADAS before developing his career with HSBC. He brings substantial business management experience to the Regional Team, and a detailed understanding of the complexities of the industry in the region.

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