Outlook 2020: Tech will improve combinable crop profits

In the short term there will be some excellent financial results from harvest 2019 across the country, says Andersons Midlands partner Sebastian Graff-Baker, with wheat yields breaking records on many heavy land farms.

While high yields have pushed prices down, those who locked into higher early prices should achieve some strong returns.

Following this, the wet autumn and winter are challenging not only cropping plans, but also logistics and production costs down the line.

See also: Structures and buildings allowance – a guide for farmers

Calculate breakeven points

Winter wheat, for example, still offers the highest margin on most combinable crop farms.

However, at £140/t, many farms can only generate a profit where yield is more than 7.5t/ha, once all costs are taken into account, Mr Graff-Baker says.

This includes variable and crop-related overheads, and an allowance for rent or a rental equivalent (for example, finance costs of land purchase).

The equivalent breakeven yield for oilseed rape at, for example, £330/t, is 3.1t/ha.

The national average five-year wheat yield is in the region of 7.8t/ha, with a range of about 5t/ha to 12t/ha, says Mr Graff-Baker. 

With 48% of land in the Grade 3 category, budgets must be precise if good decisions are to be made.

For example, when replacing machinery, it is important that the cost of depreciation is accounted for.

This is in order to provide for the true cost of machinery replacement rather than simply the cash price difference between the value of the outgoing machine and the price tag of the new one, says Mr Graff-Baker.

A fair value must also be attributed to the cost of unpaid labour.

Knock-on effect of autumn 2019

Budgets this season need to reflect the effect of the shift to spring cropping forced on many growers (see “Big changes in cropping area from 2019 to 2020”).

The likely cashflow issues that will follow, along with increased weather risk, potential storage capacity issues, disrupted rotations and changes to workload.

However, spring drilling also offers an additional opportunity for spring biosolids applications.

In some cases, a cover crop and remedial work to prepare for a good entry in autumn 2020 could be a better option than cropping every acre, says Mr Graff-Baker.

“There are undrilled areas now that will be drilled, but which will not necessarily contribute a profit.” 

He suggests a feed wheat price of £140-£150/t for 2020 budgets, with a £10-£20/t milling premium. 

Map profitable tonnage

“While yield maps have been available for some time, the industry has not fully grasped the opportunity to apply this information,” says Mr Graff-Baker.

“This may be because of insufficient yield data to properly determine site-specific variations, or could be due to a misplaced belief that all operating costs are outside farmers’ control.”

Not every new technology has to be adopted, says Mr Graff-Baker, especially as the cost and complexity has been the downfall of some businesses in the past.

However, technology tools will help identify areas consistently delivering loss-making yields; those which may either be improved (where economic) or subsequently taken out of crop production into other enterprises such as agri-environmental schemes, or livestock production.

“In order to properly grasp this opportunity, we need to deal with the restriction that, in some cases, fixed [overhead] costs, create,” says Mr Graff-Baker. 

Many find this difficult to tackle when investment in machinery is closely linked to labour and so much of the labour is provided by the proprietors that could benefit financially from change. 

“It is a matter of when, rather than if, farm businesses respond to a combination of static yield and price and an underlying increase in operating costs,” says Mr Graff-Baker.

“The principles of this are clear, but the practicalities are often difficult. This autumn is a great example of why people should address fundamental issues in their cost structure.” 

One approach would be to consider greater use of contractors for reduced capital commitment and greater flexibility. However, this is not necessarily the first thing to grapple with, says Mr Graff-Baker.

“Where labour, power and machinery costs are well managed – for example, £370/ha – look at what areas can contribute a profit at that level.”

Sometimes a rethink is needed about who is involved in the business or the level of involvement and time commitment of family members, he suggests.

Environmental opportunities

Increasing political and social pressure for a “cleaner” agricultural industry will create further opportunities for arable farms that can reduce emissions and increase carbon capture.

Tailoring soil management to manage carbon could be one way to do this.

Low-disturbance cultivation and no-till crop establishment are already more widely used and, while not suitable in all conditions, such practices can reduce operating costs and cut carbon emissions.