The Brexit vote for the UK to leave the EU has undoubtedly improved the prospects for the arable sector in the short term. Longer term, however, a vast amount of uncertainty still hangs over future trading and support arrangements. How should combinable crop businesses react to this new environment? On the ground, in our region, autumn crops established well and look promising. Further south the recent very dry spell may have done significant damage to yield. Here in Yorkshire the rain two weeks ago came just in time, particularly for spring cereals and root crops.
From a price perspective, the major change since this time last year has been the shift in currency. Had it not been for this currency effect, UK cereals prices would be up to £20 per tonne lower than they currently are. UK ex-farm feed wheat is currently in the range of £130-£140 per tonne and signs are this may persist for some time.
Short term therefore, returns from arable farming look set to be better than in recent years. However, this is almost entirely due to a favourable exchange rate and masks the underlying issues faced by many businesses – often a high cost base and disappointing yields.
Achieving high yields is a key element to reducing the cost of production per tonne. Partly this requires timeliness of operations and input use. However managing longer term issues of fertility, soil structure and weed burdens is also crucial. Some parts of the farm and, indeed, individual fields may be highly profitable while others underperform.
High rental levels have also added cost to many businesses. It is worth questioning whether some of this additional land is really contributing extra profit or just generating extra work. Great opportunities still remain for the industry to take cost out through increased cooperation and collaboration. Unfortunately, during more profitable times, the value of collaboration is often overlooked.
Longer term, Brexit will, almost certainly, mean lower levels of direct support and could impact significantly on trading and prices. To remain profitable the management of ‘Costs of Production’ will be crucial. Key areas will, as always, include:-
- Land selection
- Machinery costs and the opportunity to share resources
- Rental levels and the cost of farming opportunities
Cereal farmers should use the next two harvests to get their businesses ‘match-fit’ for the post-Brexit world. This might range from a few minor changes to fine tune a successful enterprise, to a fundamental reassessment of the way the farm approaches crop production.
Andersons already work with some of the most progressive cereal businesses across our region. Our consultants can help arable farmers make the correct strategic decisions and improve profitability.