Ian Browne (Stafford)
For arable farmers the season of planning is well under way. If you are unsure about the next season, you need to consider cropping carefully now. Have you calculated out what the impact on next year’s cropping may look like? Should you be saving seed and dressing it or are you buying new seed and if so, what price will it be? If you do save some crop as seed, ensure it is clean and harvest it dry while keeping it separate from the rest; treat it with respect!
What price will fertiliser be, and have you committed to its purchase already? Do you need to add P & K to the soils as a base dressing; what do your soil analyses say? Will this be a year to move to “min till” so as to save time and diesel? What works for your land? Will committing to some forward purchases of agrochemicals be wise so as to lock into a good or known price?
While all of the above are fundamental to establishing the cost side of the equation, you do need to think realistically about what the impacts would be if prices moved up or down say 10%. By doing this sensitivity calculation you can see what the business needs to earn from the sales of each crop, remembering to calculate in all other overheads i.e., what crop you need to sell to achieve the desired profit for the business.
Having established this figure, then divide it by a realistic yield for your farm and you will discover the breakeven price required. Is this realistic? Will the market be likely to grant the required price per tonne to achieve your goals? By looking at the forward market prices and grain futures you should be able to assess the likelihood of being successful. Some farmers when they know their costs start selling forwards to cover the basic inputs. Be careful to not over commit to forward selling as you will not have actually grown the crop at this stage! Assuming you settle on an average of say 3.5 tonnes per acre (8.6 tonnes / ha) then you might take a stab at forward selling on the basis of say 1 tonne / acre pre New Year, 1 tonne / acre pre-Easter (when crop is established and you know how it is looking) and finally maybe 0.75 tonnes by end of May / early June when all inputs are broadly completed. This still leaves you about 0.75 t / acre to speculate with or allow for some crop upsets / damage. Always be careful to be realistic about assessing inputs and yields as you can come unstuck if you are too optimistic.
At all times a realistic approach is required. You need to know break even points or the “hurdle rate” that needs to be achieved. Use the various tools available to you in terms of forward buying and selling. Consider how you will pay for everything in terms of the business cashflow. Should you be considering short term crop input finance to match paying for inputs with grain sales? There has never been a more important time to do proper financial planning and budgeting as we enter this period of financial turbulence.
Contact Ian at ianbrowne@fcgagric.com or your local FCG Office, for assistance with financial planning and budgeting your business forward.