With significant price fluctuations over the last few years increasing costs, net margins for UK wheat farmers have been squeezed.
Olivia Bonser and Karen Covey from AHDB looked at the Farmbench results for over 400 wheat enterprises from across the UK.
The production year 2021/22 (harvest 2022) stands out as exceptional, with strong market prices driving a high total income of £2,552/ha, resulting in an average net margin of £1,097/ha. Prices during that time were particularly high as tight global wheat supplies were compounded by the start of the war in Ukraine.
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AHDB graph
Prices have since dropped, with a corresponding drop in income per hectare. This returned net margins in 2022/23 (harvest 2023) to the same level as seen in 2018/19 (harvest 2019) and 2019/20 (harvest 2020), at around 15% of total income.
However, there is an underlying trend of increasing variable and overhead costs over the last three years. This has led to concerns over a possible squeeze on net margins in the coming seasons.
Most of the increase in variable costs is due to rising costs of fertiliser and, to a lesser extent, crop protection products. For example, the average cost of fertiliser for wheat crops grown in 2022/23 (harvest 2023) was £432/ha, compared with an average of £226/ha over the four previous years – a 90% increase.
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The rising overhead costs come from a broader range of categories, including labour, machinery and equipment, and property and energy. These increased by an average of around 20% over the five-year period. It is important to note here that these figures show the full economic net margin, which includes imputed costs such as family labour and rental equivalent on owned land.
While spot fertiliser prices have eased over the past 12 months, they remain above the levels seen before the war in Ukraine. Other costs, such as the cost of borrowing and fuel, also remain higher. New-season fertiliser prices are usually released in May/June. Against this backdrop, knowing your full cost of production is more important than ever for maintaining net margins.
Analysing your business and knowing what it costs to grow each crop in your rotation can also help when marketing your crop. It is difficult to know what a ‘good sale price’ is without knowing the true cost of production.
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