Author: Caroline Ingamells

As harvest progresses in the UK, grain prices have continued to slide.  The value of UK November 2024 UK feed wheat futures reached the lowest point for the contract since March 2024, although spot prices remain ahead of those levels.  The full picture for grain, oilseed and pulse prices is tracked monthly in our Key Farm Facts.

The Andersons Centre has been carrying out harvest reporting for AHDB throughout the course of the summer.  The latest harvest report was published on Friday 16^th August.  This showed that the wheat harvest was 37% complete; significant progress has been made in the weeks since then and is now nearing completion in much of Eastern England and the Midlands.  Wheat yields so far are 7% down on the five-year average across the UK.  There has been significant regional variation, with yields generally better for winter crops in East Anglia, and poorer in the Midlands.  This is perhaps not surprising given the challenges during planting and crop development this season.

Spring crop harvesting is also well underway across much of England.  Early signs suggest that spring crops are performing better, comparatively, than winter crops.  Yields and grain sizes have been promising and malting quality of barley samples has been good.  The lack of sunlight through crop development has led to low levels of nitrogen.

While low nitrogen is good for malting barley, the same cannot be said for milling wheat.  Low protein content has been a feature of milling wheat samples.  This has led to continued strength in milling premiums.  That said, poor protein is more manageable for millers than last year’s Hagberg quality challenge as it can be blended to acceptable levels. This may result in a fall in premiums through the season.

The direction of global grain prices is driven by the balance of global supply and demand.  The United States Department of Agriculture made unexpectedly large upward revisions to maize and soyabean production estimates in August.  The trade had expected increases of 0.75% and 0.05% to soyabean and maize production, respectively.  The USDA increased their forecasts by 3.48% and 0.29%, respectively.  The size of the change is relatively small but, being greater than traders expected, led to a decision to sell more, leading to a fall in prices.

Domestically, pressure is also coming from increased grain stocks which have been carried through harvest.  On-farm stocks are estimated at 1.16 million tonnes and more than 1 million tonnes of merchant, ports and co-operative stocks.  According to AHDB this figure is 89% above the five-year average level.  This reflects both the expectation of a smaller 2024 by the trade, and also the direction of prices this season leading to a lack of farmer selling.

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A reminder that the succession rules under Agricultural Holdings Act (AHA) tenancies changed as from the 1st September.  This is one of the changes brought in by the Agriculture Act 2020.  The previous ‘Commercial Unit’ test will be scrapped – this effectively meant someone could not take on the tenancy if they already had control of a large enough holding.  From the 1st September there will be three conditions for succession.  There are two ‘eligibility tests’ – firstly the potential successor must be a close relative to the previous tenant; secondly the successor must have derived their principal livelihood from the farm.  Then, the third condition is a ‘suitability’ test.  The person wishing to take over the tenancy must have the right level of experience, skills, financial standing and capability to take on the farm.  This test has been strengthened as a qui-pro-quo for the removal of the Commercial Unit test.

 

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Profitability figures from our Friesian Farm model are shown in the table below.  This is a notional 220+ cow business in the Midlands with a milk contract on a constituent basis.  It has a year-round calving system, like much of the UK industry, but it is trying to maximise yield from forage.  The figures are for milk years – April to March.

The 2022/23 year was a very profitable one for most dairy farms.  Milk prices rose to unprecedented levels and although costs went up a lot as well, many dairy farmers made record profits.  During the 2023/24 year milk prices declined considerably.  With costs ‘sticky’ on the way down, the business only broke even from its farming activities.  The decline in the BPS in England can be clearly seen.  For 2024/25 however, this farm has gone into the SFI.  This adds a useful amount to the bottom line (although there are costs to the scheme which are included in the farming margin).  Milk prices are firming but there is a question over how far and fast any rises may be.  Overhead costs drop for 2024/25 – this is due to cheaper fuel and electricity, but also due to unusually high contract costs during the previous year.  A strong recovery in profitability is forecast for the current year.

The final column is our first forecast for 2025/26.  An improving dairy market outlook sees the milk price up 1ppl.  Variable costs have remained fairly stable over the last couple of years and we forecast them just rising with a normal level of inflation.  Forecast overhead costs would have fallen for the year but the farm has budgeted to make some long-term investment in slurry storage.  We can clearly see the level of BPS declining, but together with the SFI payment the total is currently still more than support received in 2019/20 – a reminder that the costs of undertaking the actions to be in SFI (i.e herbal leys) are much higher than the BPS, but these have been accounted for in the farming margin.  Overall, however, the budget for 2025/26 shows some good returns – but it should be remembered that a lot can change in 18 months.

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Following its landslide victory in the General Election, the new Labour administration is starting to bed-in.

In farming terms, the former Shadow Defra team have been installed into Ministerial posts – meaning there should be little need for them to get up-to-speed on policy issues.  Steve Reed has become Defra Secretary of State and Daniel Zeichner has a junior position as Minister of State.  Mr Zeichner, MP for Cambridge, will be in charge of the farming portfolio as he was in the Shadow Cabinet.  Steve Barclay currently retains the Defra brief in Rishi Sunak’s new Shadow Cabinet.

Mr Reed (MP for Streatham and Croydon North) has already set out his five priorities for Defra;

• to clean up rivers, lakes and seas
• to move Britain to a zero-waste economy
• to boost food security
• to ensure nature’s recovery
• to protect communities from the dangers of flooding

At present, there is little flesh on the bones of these priorities.  The Labour Manifesto was notably silent on specific commitments to farming.

Labour’s longer-term legislative priorities were set out in the King’s Speech on 17^th July.  Over 35 potential Bills were announced.  Boosting economic growth by easing Planning rules was the centrepiece of the programme.  A Planning and Infrastructure Bill will be introduced which aims to ‘speed up and streamline the planning process to build more homes of all tenures and accelerate the delivery of major infrastructure projects’.  The new Government is already showing its priorities under existing powers.

• the end to the de facto ban on onshore wind
• reinstating mandatory housebuilding targets for Local Authorities (however, as many of these targets were never met in the past, it will be interesting to see what practical effect this has)
• the recruitment of 300 new Planning Officers to help reduce the backlog of applications
• prioritising energy infrastructure, with decisions being made in relation to the national interest (including the effect on growth) rather than just local considerations. Three large-scale solar farms have been approved in England, totaling 6,500 acres of farmland, which had been waiting for a Ministerial decision.  There had been strong local opposition to all three.

The transition to clean energy is a wider theme of the new Government.  A Bill will be enacted to set up GB Energy, a company headquartered in Scotland, that aims to accelerate investment in renewable energy.  There will be increased protection for workers (and cost for employers) under a new Employment Rights Bill.  A Renters Rights bill will give greater rights to tenants in England, including ending section 21 notices to quit.  New legislation will strengthen the powers of the water regulator – partly to improve water quality in rivers.  There will also be an English Devolution Bill aiming to pass power from Whitehall to the regions – but seemingly requiring Councils to come together in larger administrative units.

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In our article last month which reported on the expanded 2024 offer, we said the 23 SFI 2023 actions would be available in the SFI 2024.  This is true, but there are some (potentially significant) changes to the rules under some of the actions.  Below is a list of some of the key changes, although not exhaustive, and farmers and their advisors should check the new rules for themselves:

• CSAM3 – Herbal Leys.  This action will now be static.  It is also more prescriptive on the seed mix, which should include at least 1 grass species, 2 legume and 2 herb or wildflower species
• CIPM2 – Flower-rich grass margins, blocks, or in-field strips.  This action will be static.  In addition, it will only be possible to put ‘part of the available area in a land parcel’ into this action – it doesn’t actually give advice on what constitutes ‘part’ of a parcel
• CNUM3 – Legume Fallow.  This will be static.  Originally in SFI 2023 NUM3 was a static option and then was quickly changed to rotational.  It seems to have reverted back; this could present a problem to those who were thinking of using legume fallow as a break crop in the crop rotation
• CIPM4 – No use of insecticide on arable and permanent crops.  If the land is being used to grow arable crops (including non-permanent horticultural crops), this action must be done on one ‘cash crop’ from when it is sown until it is harvested.  Many have been advocating for this
• CAHL1 – Pollen and nectar flower mix.  This action will be static.  Furthermore, it will only be possible to put ‘part of the available area in a land parcel’ into this action
• CAHL2 – Winter bird food.  It will only be possible to put ‘part of the available area in a land parcel’ into this action
• CAHL3 – Grassy field corners and blocks.  It will only be possible to put ‘part of the available area in a land parcel’ into this action
• CIGL1 – Take improved grassland field corners & blocks out of management.  It will only be possible to put ‘part of the available area in a land parcel’ into this action
• CIGL2 – Maintain improved grassland to provide winter bird food.  It will only be possible to put ‘part of the available area in a land parcel’ into this action

There are some more ‘general changes’ which sees a slight change to the phrase ‘it is up to you how you do this action‘ which now includes ‘as long as you:

• follow this action’s requirements – these are identified by a ‘must’
• do the action in a way that could reasonably be expected to achieve this actions aims

It is our understanding that the new rules will only apply to agreements under the new expanded SFI 2024 offer, but we will endeavor to keep readers informed of any updates.

For those who like a booklet, Defra has provided a pdf version (366 pages) of the actions this can be found via https://assets.publishing.service.gov.uk/media/6655a85d0c8f88e868d33282/SFI-2024-actions-print-version.pdf. 

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UK farming made surprisingly good profits in 2023 according to Defra.  The Department has recently released figures for Total Income from Farming (TIFF) – this is the aggregate profit for the whole UK farming and horticultural sector.  The headline figure is that profits fell 16% in real terms between 2022 and 2023, but last year’s figures still came in at a very healthy £7.2bn – the third highest returns in the past 25 years.

The Defra figure for 2023 is much higher than we had been predicting.  We had estimated that profits for the year would fall to around £5bn.  Part of the reason is a sizeable upwards revision for the 2022 year (from 7.9bn to £8.6bn).  This results in the 2023 figure being higher.  There is a history of quite large revisions in the TIFF figures – we would not be surpised if those for the past year were amended in due course as well.

Both crop output and livestock output were down in 2023 compared to 2022 – by 16% and 7% respectively in real terms.  (Both of these drops were lower than we had forecasted).  Variable costs (called ‘intermediate consumption’ in these figures) showed a surpising drop of 9% year-on-year.  The fall was wholly due to a big drop in the value of animal feed consumed on farm.

The chart below shows the evolution (in real terms) of TIFF over the past 25 years.  TIFF shows the return to all entrepreneurs for their management, labour and capital invested.  In simplistic terms, it is the profit of ‘UK Agriculture Plc’.  Also shown on the chart is the contribution of direct support (BPS plus agri-environment scheme payments).  This has declined in recent years as inflation has eroded its real terms value.  However, it continues to contribute a sizeable proportion of farm profits.

Given our belief the 2023 figures might be revised downwards somewhat, our estimate for the current 2024 year is for a TIFF (in real terms) around the £6bn mark.  We would expect costs to rise as inflation continues to work its way through the system.  Harvest 2024 looks set to deliver low yields and unspectacular prices.  In contrast, most livestock sectors are currently having a reasonable year.  TIFF at this level would be very much in the normal range seen over the past few years – discounting the very good returns of the past three years.

The data on farm incomes (profits) comes from Defra’s annual publication ‘Agriculture in the UK’.  This compendium of statstics includes data on all aspects of the food and farming sector.  Full details can be found at – https://www.gov.uk/government/collections/agriculture-in-the-united-kingdom

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Details of the Sustainable Farming Incentive 2024 offer are now available.  A controlled roll out via Expressions of Interest is currently taking place with the scheme expected to open to all later in the summer.  To assist farmers with understanding what will be accessible we have produced a 4-page SFI Factsheet giving a summary of all the actions that will be available.

Click Here to access our SFI 2024 Factsheet.

If you require advice from one of our consultants, do not hesitate to contact them by email or phone.  Their contact details can be obtained by clicking here. Alternatively, your can also contact our office on 01664 503200 or email [email protected]

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Defra has released information on how and when existing Countryside Stewardship (CS) and Higher Level Stewardship (HLS) agreement holders can exit their current agreements if they wish to.  From September, CS Mid Tier and HLS agreement holders will be able to apply to end their existing agreements early to go into the SFI or a CS Higher Tier scheme (opening this winter) either:

• at the end of the current agreement year and receive the full payment due for that year (subject to meeting the requirements of the agreement)
• before the end of the current agreement year, but not receive payment for the part of the current agreement year that’s already completed

Note, that it will not be possible to end existing agreements before September.

Contrary to previous advice, there will not be any requirement for the new agreement to be the same or ‘better’ than the existing agreement.  Previously the message had been that early termination would only be allowed if the new agreement would deliver the same or greater environmental benefits as the existing agreement.  However, we always thought this would be difficult to show when the system doesn’t allow a new scheme to be applied for when the old one is still running.

If the existing agreement includes an SSSI or Scheduled Monument, agreement holders will need to keep managing the land in line with the requirements of those designations.

The case is not so straight forward for those with a CS Higher Tier agreement.  It will only be possible to end the existing agreement early ‘by exception’.  Defra has not expanded on the criteria for this as yet, and has said more information will be available in the summer together with details on how CS MT and HLS agreement holders can apply to end their agreements.

In terms of agreements which end on 31st December 2024, Defra has said it should be possible to apply for an SFI or CS Higher Tier agreement ahead of this date, so that the new agreement is ready to commence on 1st January 2025.  Furthermore, agreement holders are reminded that they can apply for an SFI agreement to run alongside an existing agreement as long as the actions under both schemes are compatible and there is no double funding.

Ending an existing agreement early to enter the SFI is one of the most common questions we receive.  This does give a time frame, even if we still don’t have all the detail.  We also know of cases where there has been a problem applying for SFI when an HLS or CS agreement is coming to an end or has recently finished, hopefully this means Defra has addressed or will be addressing this problem shortly.

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