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Budgeting overhaul needed as volatility continues to stunt farmers

With price cycles continuing to overhang the farm community, experts have said farmers should monitor if their businesses are profitable over the long term


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Extra budgeting to monitor a farm’s financial performance over a five-year period is required as volatility continues to have an impact.


That was an overarching theme of farm business consultants Andersons’ spring seminar at J36 auction centre near Kendal, Cumbria, last week.


With many commodities facing a serious downturn, the theme of volatility in agricultural markets has been discussed frequently in recent years.


Andersons’ Graham Redman suggested a way to monitor whether a farm business was profitable was to budget over a five-year period and look at the average profit over the entire period, not just year to year.

 


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Resilience: Tips to survive at low prices

  • Long-term and short-term budgeting to help the bank if extra finance is required
  • Challenging every item of spending
  • Postponing investment if it will not affect output
  • Benchmarking and analysis

“Complete a five-year budget,” he said. “If a farmer can do this, he can look at whether he has a sound business structure for long-term prices.”


Mr Redman discussed this type of budgeting for volatile grain prices, such as those seen in recent years.


Other speakers from Andersons suggested it was a model which could be used across several types of farm commodities.


Volatility was a running theme of the seminar, but Mr Redman suggested it was not the volatility of price, but simply low prices which were currently hurting arable farmers. “Our forecasts are not particularly exciting,” he said. “There is a little bit of a lift in price because of the weakness of the pound but there is not much news which would prompt quick price returns in the arable sector.”


Discussing farm profitability across the different sectors for 2016, Mr Redman expected profitability to be similar to last year. He said: “At the moment we are pitching the current year to be comparable, so not great news for 2016.


“Since 2009, overall subsidy has been tapering off. Almost without doubt, that is a trend which will almost certainly continue whether we are part of the EU or not.”


Mr Redman added, however, the majority of farm costs would also be falling, but he also noted the impact to costs from a possible increase in the minimum wage.

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