Top-performing farm businesses pull ahead in tough times

The gap between the best- and worst-performing farms will widen in a world of volatile prices, according to an annual report.

In HSBC’s Forward Planning 2015 booklet, the bank’s head of agriculture Allan Wilkinson said some farm businesses had used previous better returns to invest in expansion or becoming more efficient.

“Even during [that] period, the variation in individual business performance across each sector has been considerable – and this difference between the best and worst will widen going forward,” he said.

“The top-performing businesses will continue to excel principally because they have a lower cost of production – it is a key difference between the best and even the average performer.”

For cereals, the outlook for marketing the 2014 crop was poor, the report said.

Latest UN figures predict world cereal production to reach 2,523m tonnes in 2014 and stocks to hit their highest level in 15 years by the end of next year’s cropping season.

Mr Wilkinson said farmers will need to spend more time marketing their product than relying on selling spot.

“Having a marketing strategy will become the norm, rather than the exception,” he added.

In dairy, the long-term outlook remains positive but this winter will be very challenging, HSBC said.

The milk price is likely to fall another 2-3p/litre, while feed costs have only fallen 1-1.5p/litre.

The report said dairy businesses needed to build systems with a cost of production prepared for volatile prices and targeted at their individual milk contract.

The 2015 prospects for beef and sheep producers were more mixed, with better weather and cheaper feed offering encouragement but lower farm support payments and weaker beef prices presenting challenges.

HSBC said the top-performing businesses had more focus on sheep than cattle, were slightly larger, had lower fixed costs and made maximum use of forage.

Welsh survey backs report findings

Broad differences between the average- and top-performing units have been highlighted by the 2013-14 Welsh Farm Business survey.

On hill cattle and sheep farms, the average profit after deducting rent and finance but before unpaid labour was £153/ha, compared with £416/ha for the top third – a gap of £263/ha.

Upland cattle and sheep farms had a £207/ha difference between the average and top third, with lowland holdings having a £280/ha gap.

The average hill and upland dairy farm made £810/ha – £881/ha lower than the best. The gap stretched to £911/ha in lowland units.