Bank says 2010 farm costs will exceed prices

Production costs are likely to outweigh farmgate prices next year, making many farmers reliant on the single farm payment to turn a profit, according to HSBC‘s latest Forward Planning figures.

The bank suggests that feed wheat will cost the average grower £135/t to produce, compared with a budgeted price of just £105/t, while typical production costs for conventional milk of 25p/litre will be around a penny above the expected price.

The figures are little better for the red meat sector, despite it having benefitted from relatively strong trade over the past year. HSBC predicts that production costs for the average lowland sheep flock will be around £2.16/kg liveweight, compared with a budgeted price of £1.40/kg. Finished store cattle are likely to cost 47p/kg lwt more to produce than the average price of £1.55/kg lwt.

“We are now entering the sixth year of single farm payments and while they are technically decoupled from production, UK agriculture has not been able to decouple profitable production from the SFP,” head of agriculture Pat Tomlinson said.

There was a slightly more positive outlook for sugar beet and pig production, where prices were predicted to cover average production costs.

Mr Tomlinson acknowledged actual performance would vary between individual businesses and many of the best farmers in each sector would be able to make a profit before the SFP. “Each farm will have its own costs and to that end, we would encourage all farmers to calculate their own figures,” he said.

* For more on the Single Farm Payment, see Phil Clarke’s Business Blog