Farming Focus

Meadow Farm, our mixed lowland farm model, made its largest-ever margin from production in 2025/26.  As previously reported, this is actually only the second time in its history that the business has made a profit before support payments.  For the current year, an increase in both variable costs and overheads, results in a large fall in the margin from production, but it is still budgeted to be positive.

Meadow Farm is a notional 154-hectare (380 acre) holding in the Midlands.  It consists mostly of grassland, with wheat and barley mainly for livestock feed.  There are 60 spring-calving suckler cows with all progeny finished, a dairy bull beef enterprise and a 500-ewe breeding flock.  It has an SFI 2023 agreement which will finish at the end of this year.

The table below sets out actual results for the years 2024/25 and 2025/26.  There is then a budget for the current year and the first forecast for 2027/28.

For the financial year ending in April 2026, high livestock prices and lower feed costs resulted in an increase in the Gross Margin over the previous year.  Overheads rose, partly due to inflation but also because Meadow Farm replaced its old tractor and loader and also upgraded its cattle handling system; partly grant funded under the Farming Equipment and Technology Fund (FETF).  Finance costs reduced, due to lower borrowings and interest rate cuts; drawings rose with inflation.  Overall, the Margin from Production was the largest in the farming model’s history.  There is a large decline in the BPS because of the higher deductions under the Agricultural Transition.  The SFI fell marginally, due to the lower Management Payment in years 2 and 3; but business profitability is very good for this farm compared to historical levels.

For the current 2026/27 year, cattle prices are forecast to fall – as current market values are lower than last year.  However, as Meadow Farm sells its cattle in the autumn, it is hoped prices will have risen and we can adjust the figures upwards.  The budgeted lamb price is higher than last year.   The farm starts selling its first lambs about now (June/July) continuing through the autumn and the prices are currently very strong.  Variable costs increase due to an increase in the cost of calf purchases and also fertiliser; although MF did manage to buy some of its fertiliser before the hike in costs due to the Iran conflict.  Overheads continue to rise due to inflationary pressures but also the increase in fuel price.  Furthermore, on the back of last year’s profits, the proprietors are able to make some overdue repairs to the traditional farm buildings and they also renew their farm vehicle.  This sees the Margin from Production fall, although it is still positive.  With the BPS now negligible, it shows how important the SFI payment has become.

For the first forecast for 2027/28 output is expected to fall.  This is due to a decline in livestock prices.  We do not expect a ‘collapse’ and values are forecast to remain at historically high levels, but we are expecting them to come back a little from the exceptional highs as the ‘cost of living’ could see purchasers switching to cheaper proteins such as poultry and pork.  Variable costs are forecast to decline, due to lower fertiliser and calf costs.  Overheads are down due to an expected reduction in fuel costs by next year.  However, some fencing repairs are budgeted, partly funded by the Capital Grants scheme (due to open in July); this results in a negative margin from production.  With, again, practically no BPS now, just £600, Meadow Farm is reliant on its SFI to bring it back into profit.  It is hoped Meadow Farm will be able to secure a new SFI commencing in January 2027, but it can be seen how the loss of the payments for the ‘plans’ and the Management Payment together with the reduction in the payment for Herbal Leys under SFI26 reduces the revenue for this farm from £178 per ha to £117 per ha – a drop of £9,312 per annum.

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Defra has opened Window 1 of SFI26 and provided information on ‘soon-to-expire’ agreements which will be eligible to apply for SFI in Window 2.

Window 1 opened on 30th June for small farms (less than 50 Ha) or for those who have not got an existing ELM revenue agreement (SFI, CSMT, CSHT or HLS).  Applicants in Window 1 need to have been registered with the RPA (i.e. had an SBI) on 1st January 2026 with some agricultural land linked to that SBI at that time. This perhaps hadn’t been appreciated by everyone.

Defra originally said Window 1 will be open for around 2 months or until the £60 million available for this window is fully allocated whichever is the sooner.  However, as at 3rd July 50% of the budget had already been allocated.  Defra publishes updates when approximately 25%, 50% and 75% of the budget has been allocated.  If farms are eligible for Window 1 but opt not to apply now (or don’t submit an application in time), they can apply in Window 2 later this year instead.  It may be prudent to do this if they have a soon-to-expire agreement – see below for more information.

Window 2 is expected to open in September.  It will be available to all farmers and land managers who have an SBI at the point of application, with at least 3ha of eligible agricultural land linked to it.  Window 2 has £180m allocated to it plus any unallocated funds from Window 1 (which is looking unlikely). Defra will also publish updates when approximately 25%, 50% and 75% of the Window 2 budget has been allocated.  Looking at the speed in which Window 1 is being allocated and with Window 2 accepting ‘soon-to-expire’ (see below) agreements, Window 2 is not expected to be open for long before the budget is all used up.

Soon-to-expire

A question that has repeatedly been asked is ‘will Window 2 be closed before those with agreements expiring late in 2026 or early in 2027 are able to apply?’. Historically, it has not been possible to make an application until an existing agreement has finished, where that land is already tied into specific actions.   In our previous article, we mentioned Defra was working on new functionality to allow ‘soon-to-expire’ ELM agreement holders to apply in the September window, before any existing agreements had finished. This is something the computer had always said ‘no’ to.  Defra has said this new functionality will be available for Window 2 (from September 2026). For SFI26, it will apply to farmers with agreements expiring by the end of February 2027, under the following schemes:

• SFI23
• Countryside Stewardship Mid Tier (CSMT)
• Legacy CS Higher Tier (CSHT)
• Environmental Stewardship Higher Level Stewardship (HLS)

The new functionality will allow SFI26 agreements to start after the existing agreement has ended. This means there will be no funding gap for these farmers.  For those whose agreements expire after this date there is less certainty, Defra has said ‘Farmers with agreements expiring at the end of March 2027 or later may be able to apply for a future SFI offer. We’ll announce the timing of the SFI27 offer in due course’.

Small farms, eligible to apply in Window 1, which have a ‘soon-to-expire’ agreement may want to consider whether it is more beneficial to wait for Window 2, so they can have an agreement across all their land.  As a reminder, it is only possible to have one SFI26 agreement.

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