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Cereal margins are expected rise this year as the UK heads for a 14.5m tonne wheat harvest – but market volatility will continue, say... 14.5m tonne wheat harvest ‘won’t stop market volatility’

• Higher prices mean high margins

• Input costs have restricted yields

• Management key to profitability

Cereal margins are expected rise this year as the UK heads for a 14.5m tonne wheat harvest – but market volatility will continue, say industry experts.

Harvest in some areas is expected to start a fortnight early – although lack of rain means some crops are unlikely to fulfil their yield potential. Conditions have been better than last year in many parts of the country – but high prices have restricted fertiliser applications.

“The reality is we are still talking about a 14-14.5m tonne wheat crop out there,” said Cecilia Pryce, head of compliance, shipping and research at grain traders Openfield. “That is about just enough to get us home and dry – it won’t stop market volatility.”

Productivity and good cashflow management will be key to farm profitability as input costs continue to rise and the basic payment is phased out, growers were told at a meeting of the British Crop Production Council in London.

Net margins

Many farms would achieve a net margin in excess of £500/ha (£200/acre) this year, said Ed Hutley, farm business consultant and partner at Ceres Rural. But the future was more uncertain due to volatility and changes in farm support.

A Ceres Rural survey of 171 farms across all crops types suggests growers “got themselves out of jail last year,” said Mr Hutley. Crops were drilled in a difficult autumn, followed by a dry spring and a lacklustre summer in 2021.

Many achieved a net margin of £500/ha last year but the general set-up remained fragile, with wide variations in machinery and labour costs. Since then, ag-inflation had seen an 8-10% increase in spray costs and a 300% increase in fertiliser prices.

Crop prospects for harvest 2022 looked better than last year although lack of rain was starting to impact on yield potential. “Most people are comfortable with their position for 2022 – but beyond that it is more uncertain,” said Mr Hutley.

With another reduction in basic payments this year, productivity would be key to maintaining farm incomes. “Perhaps we are facing a choice between high input/output and low input/output agriculture – or maybe a change in farming system altogether.”

Long-term risk

Arable margins might be attractive at the moment due to high commodity prices – but Mr Hutley said farmers should consider the risk over the longer term. Some less productive areas of land might be better off in countryside stewardship, for example.

“Oilseed rape this year might be as profitable as winter wheat – but how many bad years have we had? A low yielding bean crop could be less risky. And countryside stewardship is less risky still because the income is guaranteed.”

The government’s forthcoming Sustainable Farming Incentive would never replace income lost as the basic payment scheme is phased out. But it could provide a useful source of revenue for farmers – especially for growers already meeting its requirements.

Other potential sources of income included carbon sequestration – although it was a fledgling sector with more questions than answers and should be approached with caution. Biodiversity Net Gain could be more attractive in the near future, especially for farms near the urban fringe.