Bury St Edmunds: Farmers ‘set for squeeze’ as crop prices fall and costs rise
- Credit: citizenside.com
Lower commodity prices and rising input costs are set to put the squeeze on farmers in 2015, a land agent has predicted.
Richard Levin, a partners at Brown & Co’s Bury St Edmunds office, warns the two factors will severely restrict arable cash flows during 2015 and beyond and is advising farmers to tighten their belts and prepare.
With grain prices back to 2010 levels and input prices considerably higher, many arable farms are already feeling, or can foresee, a certain amount of cash pressure, he said.
In the short-term things look manageable, said Mr Levin, but cash will start to get tighter.
“On a typical arable unit the level of borrowing is currently falling due to early grain sales. However, lower prices will mean many businesses will be left with a larger overdraft than normal as they go into winter, though for most it will probably be within agreed limits,” he said.
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“A shortage looks set to bite in the first half of next year and, with poor prices also forecast for the harvest 2015 crop, this is likely to push borrowing to fresh highs towards spring 2016.”
Brown & Co’s farm budgeting model shows what might happen on many farms over the 2014 and 2015 harvest years and demonstrates clearly why growers need to prepare, he said.
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Browns Farm is based on a typical eastern counties arable unit, a family farming partnership operating on 420ha of owned/tenanted light and heavy land, growing mixed combinable crops and sugar beet.
“The original budget for the current harvest year (April 2014-2015), drawn up in December 2013, forecast a peak borrowing requirement of about £370,000 in summer 2014, falling to about £150,000 in December,” he said.
“However, a recent revision shows profits are likely to fall from the £87,455 originally predicted, about £208/ha, to just £28,269, or £67/ha. As well as the lower commodity values, higher spray costs for late spring and summer 2014 and a reduced single farm payment are also having an effect.”
The revised figures show that by December 2014 the bank balance remains £250,000 in the red. This is about £100,000 more than originally forecast but still within the agreed £400,000 facility. Early projections for the harvest 2015 year suggest arable margins could fall a further £110,000, while labour or machinery inflation in particular could reduce income by a further £10,000, said Mr Levin.
“With no fundamental changes being made to the system, this could mean Browns Farm would require an extra £100,000 overdraft facility, the equivalent of £238/ha, by summer 2016. Now is a good time for businesses to assess their options and, fundamentally, to talk to the bank manager.”
Farmers should roll budgets forward now to assess the impact of 2014 harvest prices and those predicted for 2015, he advised.
“A good cash flow plan needs to stretch at least 12 months ahead and, in periods of pressure, up to 24 months,” he said. “Tough times can often be a catalyst for change and can create opportunities as people are more willing to take a hard look at their businesses.”