Loam Farm Update

Cereals profitability looks set to be static at best for harvest 2014, and could well be down slightly on returns for 2013.  With support dropping with the start of the Basic Payment in 2015, profits could be under greater pressure in future.  These forecasts come from the latest Andersons Loam Farm updates,

Loam Farm is a notional business which has been running since 1991 and tracks the fortunes of combinable cropping farms.  It comprises a 600 hectare (1,480 acre) combinable crop farm in East Anglia.  It runs a simple rotation of milling wheat, WOSR, feed wheat, and spring beans.  Of the cropped area, 240 Ha are owned and 360 Ha rented on FBTs.  There is a working proprietor plus one full-time man and harvest casual.  Loam Farm figures for the past two harvests are provided below, along with a budget for 2014 and comparable support payments for 2015. 

The harvest 2013 figures are now almost final (just a small amount of grain sales to complete).  These show a sizeable fall in profitability compared to 2012.  Although yields were not as bad predicted in the spring, the rapid fall-off in prices since harvest 2013 has meant that overall returns will be lower than last year. 

For harvest 2014 things do not improve.  Although yields are budgeted at ‘average’ Loam Farm levels, around 9t per Ha for 1^st feed wheat, the current low forward prices mean that output is similar to the 2013 harvest. The 2014 average wheat price is budgeted at £150 per tonne.  Variable costs fall mainly due to cheaper fertiliser. 

Overheads drift upwards, but the main cost increase comes from rent.  One of Loam Farm FBT’s came up for renewal in autumn 2013.  Unfortunately the previous rent is below the ‘going rate’.  To secure the land an increase of £30 to £150 per acre (£370 per hectare) has been agreed; still well below the tender rents achieved in some areas.  This mean there is just a small surplus before subsidies.

With crops for 2014 generally planted and looking good, except in some areas affected by flooding, farmers may be feeling more positive about the coming year.  However, unless prices improve, the profitability prospects do not look great.  This illustrates the high-cost production systems that many farmers have created, with a large contributory factor being high rents paid.  Farmers must also be aware of the impacts of CAP reform from 2015.  Subsidy payments will go down for many farms and the lack of an ELS-type environmental scheme could see some farms facing a further £30 per Ha income drop.  As we have previously mentioned cropping for the 2015 harvest must be compliant with ‘greening’.  Loam Farm satisfies both the EFA and Crop Diversification rules so no changes in management will be needed, however this will not be the case for all.  Any changes required to be greening compliant are likely to have a cost – further reducing profitability.