Outlook 2025: Complex picture for combinable cropping

Combinable crop production might appear relatively straightforward when compared with more intensive farm enterprises, but the level of complexity depends on the grower’s perspective and the demands placed on them.

The tenant who has only short-term access to land may focus on yield alone.

Whereas the grower with a longer-term interest will need to consider the effect of the current crop on other potential sources of income, say Andersons’ Sebastian Graff-Baker and Joe Scarratt.

See also: Opportunities develop in nature markets

Andersons has previously commented that measuring farm financial performance for a single year is potentially misleading.

If growers are to maximise their incomes in the long term, there are three areas to consider: soils, subsidy and sequestration, it says.

Soils

Judging by the increased attendance at Groundswell last June, approaching 8,000 people, interest in soil health continues to climb.

Aside from any current fashion in the wider food chain, many growers have been managing soil health long before the term “regenerative” was coined.

The weather earlier last autumn appeared to be recreating the same level of disruption that was seen 12 months previously.

Fortunately, several weeks of dry weather followed; those who could wait drilled in good conditions, while earlier-drilled crops have perhaps fared better than we might have expected.

Nevertheless, the consequences of high rainfall for vulnerable soils remain all too apparent for those establishing crops in less-than-ideal conditions.

This is also the case for those where harvest is late, for example, when trying to harvest large tonnages of forage maize in late autumn.

The appeal of high returns from short-term cropping arrangements, such as maize for anaerobic digestion and specialist vegetable crops, creates a challenge for those with long-term interests in land.

Particularly as there is an overwhelming need to generate income at present to cover recent harvest shortfalls and current expenditure.

This challenge is exacerbated when there is limited empirical evidence indicating when and if improvements in soil health will bring about an overall increase in financial performance, and what size any improvement might be.

Consequently, the number of growers who are both financially able and willing to take a lower return today to pursue a greater return tomorrow is inevitably restricted.

Subsidy

Interestingly, and perhaps inevitably, subsidies are playing a part.

The direct effect of soil management options within the Sustainable Farming Incentive (SFI), together with capital grants designed to encourage less soil movement and more livestock grazing, is part of the mosaic that the combinable crop grower must consider.

Unlike the former Basic Payment Scheme (BPS), the support available in England through the Sustainable Farming Incentive (SFI) generally requires agreement holders to spend to collect.

So care needs to be exercised when looking at “headline” levels of payment, which in some cases exceed £1,000/ha annually.

The weather in 2023, in combination with continuing risks associated with growing oilseed rape, gave rise to an uptake of SFI that may not have happened had the weather been less extreme.

It also created an increased level of engagement with SFI by those who were looking to generate some income from land that would otherwise have remained fallow for the entire 2024 harvest season.

It is yet to be confirmed, but this combination of circumstances may have brought about a fundamental change in approach by those challenged by heavier soils and with ageing grain storage and drying facilities.

As is often the case, subsidies can distort business behaviour, and the effect of SFI is, in part, creating upwards pressure on rents and rental equivalents.

The cut to BPS announced in the Autumn Budget, temporary suspension of capital grant schemes and use of mirror agreements as a substitute for the promised development of Higher Tier Countryside Stewardship options are adding to the level of uncertainty.

Sequestration

Although carbon sequestration is not new, the financial effect of an unregulated market has now reached the combinable crop grower in several ways.

Produce contracts are now available with carbon-related premiums conditional on the adoption of carbon-friendly operating practices.

At the same time, those with an interest in the land also need to consider how to monetise potential increases in soil carbon.

While the market continues to be unregulated, with no soil carbon code, there is a choice between measured and modelled carbon capture

Each of which carries very different operating costs and provides different market prices, reflecting the range of integrity.

The technical demands of growing combinable crops with reduced synthetic inputs must not be overlooked but there are further challenges.

Generating profit while navigating soil health issues, an evolving subsidy regime and potential new income from sequestration highlight the need to not only understand the economics of all three but also how they interact.

Loam Farm

The Andersons arable farm model, Loam Farm, is a notional 600ha combinable-cropping business used to track the fortunes of British combinable cropping growers, and it clearly illustrates this latter point.

Given the challenges outlined in the farm profitability section above, after two unusually good years, returns are heading back to historical averages.

The effect on the 2023 harvest year has already been felt. Returns were far lower than the 2021 and 2022 harvests, which saw some of the best profits Loam Farm has seen in 30-plus years.

Even with the farm making a profit in 2023, the business was put under some cashflow pressure due to higher working capital requirements and the need to pay tax on the profits from the two previous good years.

The key issue for the 2024 harvest was output – we have seen the smallest wheat harvest since 2020 due to similar wet autumn weather experienced in late 2023.

The poor weather continued into spring, meaning late-planted spring crops could do little to offset the shortfall in winter cropping output.

Despite the reduced UK harvest, prices remain unexciting for growers, largely due to there being plentiful grain stocks around the world.

Loam Farm is therefore expected to make a loss from production from the 2024 harvest, relying on (declining) BPS as well as SFI to bring the business back into profit.

Although nitrogen prices have reduced compared with the Russia-Ukraine-related high of 2022, inflation of most other operating costs appears to have become embedded for most businesses.

This, in combination with the current prospects for income – modest crop sale price, reduced subsidy and limited carbon monetisation options – has created the poor prospect for returns from the 2025 harvest.

In England an almost non-existent BPS payment and enhanced SFI (now with a 2024 scheme) mean the overall business surplus remains very small.

SFI is a significant contributor, but of course it carries costs and, to integrate within the existing farming system, does not allow the business to reach anywhere near the levels BPS previously contributed.