Weather, want and war: farming's profitability challenges

There’s no doubt that we’ve seen – and possibly heard – enough about the first of those three over recent weeks and months but it continues to play a significant role. And it’s becoming pretty obvious that as well as the normal swings and roundabouts of outrageous weather, there does seem to be an underlying trend towards more extremes.

There’s no real doubt that we’ve already reached a stage where the number of days available for field work has declined – and this trend could be set to accelerate in the future.

Moving on swiftly then, and although it might seem mean-spirited to bemoan the effects of war on the markets when set against the horrendous costs borne in human lives, it’s not a factor that can be ignored. For the powder keg in the Middle East certainly seems to have precipitated a new wave of volatility throughout the main commodity markets.

And while there was a bit of a short-lived jump in the price of grain last week it’s more likely to be the effects which any further actions will have on inputs like fuel and fertiliser which will be more significant for the cropping sector, with fuel prices rising and many fertiliser manufacturers swiftly pulling their price lists.

War in Ukraine

As an indication of the effects the still ongoing conflict in Ukraine has had over the past few years, the AHDB released figures showing that, for cereals and mixed farms, the cost of inputs has increased by 43% over the past five years, with fertiliser and machinery-related costs being the key drivers.

Against the backdrop of static – and possibly falling – levels of support, the organisation pointed out that while farm input costs increased by more than 40%, the total funding pot for agriculture in the UK has remained constant at £2.4bn since2019.

Effectively, this means that the UK’s farming budget would need to increase by 44% to £3.4bn just to offset the effect of inflation – before taking into account any other spending required to support the farming sector.

But, with higher machinery costs having played an often unappreciated part in the sharp downturn in real-terms farm returns, it’s beginning to become noticeable that the downturn is spilling over into the dealers’ forecourts as well.

September figures

The national figures just released for tractor sales over the past month have possibly highlighted the farming industry’s concerns over current and future returns – the September figures released by the Agricultural Engineers Association showed a 19.3% drop in the number of units sold when compared with the 2023 figure while the year-to-date sales were also back by more than 15% overall.

The lower rates of sales continued the pattern seen in recent months, with the figure of fewer than 900 sales representing a drop of 17% over the average for the same month over the previous five years. In fact, sales actually showed the lowest September figure since 2015. And that brought the total for the first three quarters of the year to 8224 machines, a figure which was 13% behind the average for the opening nine months of the year.

Obviously the costs of the machines played a role here. But with many being either leased or bought on credit, the sharp move away from the negligible interest rates over the first two decades of this century is also playing its role, with the cost of financing these machines swiftly burning a much bigger hole in the bank account.

Market prices

Moving on to the ‘want’ side, it seems perverse that prices have been kicking along at unsustainably low levels, given the fact Defra has confirmed that the UK has just seen the fewest acres harvested for more than two decades, with the horrendous planting seasons at the tail end of 2023 and in the spring of this year leading to a record area being left uncropped.

While a portion of this was land which growers had simply been unable to plant, down south the figures for areas voluntarily withdrawn to be put into environmental schemes have been made available for the first time – and the estimate of productive land not being used for this reason equates to 6% of the ‘total croppable area’ in England.

On the face of it, this could negatively impact grain and/or oilseed production – but it’s likely to be the poorer land which has been submitted into these schemes where crops have always struggled to wash their faces anyway. However, it does show that policy has a key role to play.

That said, though, the supply and demand situation has always set the balance between good prices and poor ones – and sometimes it doesn’t need much of a swing in either direction to tip everything out of the scales.

So, given all that has been said here must surely lead to what can only equate to a tight situation following a small domestic – and European – harvest, it’s frustrating at best to see that this hasn’t led to any uptick in prices. This is despite the fact we know we work in a global market where bullish predictions for this year’s US maize and wheat harvests have been manipulated to their advantage by speculators in the commodity markets.

Things at home

At a more local level, we know that even with the late harvest in some areas, malting barley has held up well and surprised most growers in both terms of quantity and quality – and so the market seems to be awash with plentiful supplies. Add to that the fact that some of the maltsters are also buying up a fair old whack of the huge area of spring barley which was grown south of the Border at knock-down rates, the pressure on prices has surely been the main disappointment of what might have otherwise been viewed as a surprisingly decent harvest.

On the animal feed side, the latest figures for August show a slight dip in demand, driven mainly by that required for poultry and pig feed which were down 1.5% and 4% year on year, reflecting a bit of a retrenchment in these sectors.

In contrast, cattle feed production rose 2% year on year in August but, in what could only have been a reflection of the prices being achieved at the start of the year, the production of sheep feed was up by a massive 20%.

Going forward, however, the weather will also be an important driver of demand for sheep and cattle feed. If the weather stays wet, cattle could need to come inside sooner, which would increase the need to feed compounds. The availability of forage is also a concern as grass growth has been variable this year and quality of forage even more so, possibly indicating that more hard feed will be required as the year progresses.

So, with so much up in the air, it looks a bit like a lot of growers are holding on to a fair bit of their crop in the hope of better prices emerging – but timing it just right is bound to be a key factor in securing a decent return for a hard-got harvest.