Farms will need to monitor their costs more than ever as challenges greater than the weather set to perturb arable incomes in 2020 and beyond.
As Government throws more curveballs at the industry through loss of BPS, at a point when the industry is facing one of the lowest wheat areas in modern times, number crunching will be key to keeping ahead of the game.
James Webster, senior analyst at AHDB says through the remainder of this season and into 2021 margins could see a 20 per cent fall for some arable businesses.
“We’ve got a much-restricted crop in terms of area. We don’t have any indication yet on yield but from a wheat crop perspective we’re expecting a pretty tiny domestic crop. For oilseed rape, it will be miniscule.
“That presents an income challenge – we’ve got less in the ground and we can assume given the conditions it’s not going to yield great, so straight away you’re on a bit of a backfoot.”
On the other hand, barley area is expected to be much higher leading to exports competing with maize coming from the US and South America, adding more pressure to the feed wheat and barley markets, he says.
This, combined with the fact domestic prices will be reflective of the global market, is expected to present some significant challenges going into next season for cash flow, not only through reduced income, but increased input costs such as seed.
Mr Webster says: “I would suggest there will be some challenges with seed availability, because those planting seed crops will have the same issues as those planting open market crops. We could well see increased seed costs next year, and we’re already seeing the ag chem arsenal reduced, and as that happens, I would anticipate costs to rise.”
But the hurdle expected to be felt most and most immediately will be as farms start to lose BPS, says Mr Webster.
“The threat for something like this could be just as big to the large-scale farmers than the 50-hectare farms.
“We’re also going to probably see additional requirements as we move towards more environmental land management schemes. That will have associated costs, and we don’t know what they are yet because we’ve only got limited details on them.”
There is no time like the present to start looking at these cost implications, and how some of the risks can be mitigated against, from a cash flow perspective says Mr Webster.
“There are some really big factors that people need to pay attention to and start budgeting for as we move forward.”
The first step is to draw up a budget, looking at costs across the enterprise to identify the price of which you need to sell for, says Mr Webster.
“If you know how much your crop is going to cost you, you know how much you need to sell it for to make a profit or in many cases, minimise losses.
“There are loads of tools out there like AHDB’s Farmbench which allows you to carry costs forward from previous years, to have an idea of where you may see increases so you can put allowances in for an increase in seed costs for example. You then can start to really draw this picture of what you need to do with your marketing.
“Farming has been through a lot of these periods in its history and people have come out the other side. It just reinforces the importance of business working together and realising that farming is one industry and not lots of individual ones.
“As we move forward there’s got to be increased focus on some of these farming charities, because it’s going to be a really mentally challenging time.”
But at the same time, there will be opportunities, Mr Webster adds. “There is still money to be made out of crops if you’re not ploughing endless money into something you’re not getting returns from. Focusing on the farm business aspect and understanding how much each hectare and tonne is costing you is going to be vital, not just this year or next year, but beyond that. Even in the prosperous times it’s important to know how much it’s costing you.”