How to shield your business against lower harvest profits

The likelihood of lower profits this harvest will emphasise the need to shield arable businesses against high levels of risk and volatility.

A typical arable farm will generate just £80/ha in net margin – equivalent to profit before rent and finance – for combinable crops from harvest 2024, according to revised estimates by Strutt & Parker.

This is 60% lower than in 2023, which itself was a year in which net margins dropped significantly on the previous couple of years because of high input costs, says head of farming Jonathan Armitage.

“Even when applying this ‘best case’ scenario, our analysis points to worryingly low net margins for an average-performing farm for harvest 2024, considering the level of risk involved,” he explains.

Six months of wet weather, changes in commodity prices and reduced basic payments are set to culminate in lower combinable crop yields and tighter cereal margins this summer, says Mr Armitage.

Although variable costs have fallen considerably this year, mainly due to lower fertiliser prices, income from crop sales is forecast to be down on 2023 levels, due to expected lower yields, he warns.

Farm finances

This means growers should assess and address the full range of risks faced by their businesses as part of a strategy to shield farm finances from high levels of volatility, says Mr Armitage.

The analysis assumes growers managed to drill spring crops on any unplanted winter crop area. But in some areas this proved impossible, with growers also entering more land into schemes like the Sustainable Farming Incentive (SFI).

“The impact of the weather has been felt everywhere, but some areas are clearly worse affected than others and different soil types will also have an impact, so in that sense farm profitability is somewhat of a postcode lottery.

“Our estimated net margin for a higher-performing combinable crops business is much higher at £271/ha – based on the assumption that they will achieve higher yields and with lower fixed costs than the average business.

“However, this figure is still significantly lower than our 2021 baseline when the net margin was £622/ha.”

Assuming that crop rotations and yields return to more normal levels for harvest 2025, then the net margin is forecast to rise to £214/ha for an average-performing farm and £449/ha for a higher-performing farm.

Management implications

“The estimates highlight the importance of applying the behaviours and attention to detail needed to get into the top 25% of performers,” says Mr Armitage.

“Research consistently points to the top-performing businesses being led by, and employing, people who have a mindset which is open to change, an attention to detail, a focus on marginal gains and who are constantly looking for new opportunities.

“This message is more important than ever in this business environment. So, too, is actively managing risk which is a way for growers to put themselves in the driving seats of their businesses and protect themselves from the worst effects of extreme volatility.”