Monday, 6 January 2014

Difficulties with the weather

This is the time to reflect on the events of the last year and although the weather proved much less of a talking point this year than last, it was the aftermath of last year’s wet weather that has been one on the most significant factors affecting this year’s profits in the arable sector in particular.
The terrible weather in 2012, which continued in to early 2013 meant that many farmers were unable to plant winter crops last autumn. As a consequence they were forced to plant crops this spring, many of which struggled to grow as wet weather gave way of cold northerly winds well in to April. Such spring sown crops generally yield significantly less than their autumn sown equivalent, hence the impact on profits.
The weather did eventually warm up and we experienced hot dry conditions during June and July which impacted on the yields of some crops but in general the weather for harvest and the establishment of crops for harvest in 2014 was good. However, the writing was already on the wall for the yields for the 2013 harvest and the double whammy came in the form of falling world commodity prices. For example feed wheat and barley are trading at around £159/t and £134/t respectively today as compared to £206/t and £194/t a year ago. Accordingly with lower yields and lower prices it is not difficult to do the maths for arable farming profits in 2013.
As far as the livestock sector is concerned, 2013 has in general proved rather more positive than for arable farmers. This is in part because the falling arable commodity prices has reflected in falling feed prices which is particularly important for dairy farmers and more intensive beef producers. However, the margins in beef production still remain incredibly tight, despite 2013 seeing historically high beef prices peaking at over £4/kg.
This however causes problems to those beef farmers who fatten young beef animals bred by other farmers. The price of these so called “store” cattle has been incredibly strong which has meant beef fattening units now have frighteningly large amounts of capital tied up in livestock from which they are earning a very low margin and many of these businesses are still heavily reliant on EU support payments to make a profit.
In contrast to the beef industry, the lamb price was low early in the year and with wet followed by cold weather in to late spring, lambing was not easy. Further the lamb trade is heavily dependent on exports and with the EU economy suffering, demand from France in particular has been weaker which has not helped prices. Accordingly it has been a generally difficult year for many sheep farmers.
As far as the dairy sector is concerned the prospects look reasonably positive, provided you are not affected by the ongoing problem of TB which can have a devastating impact on dairy farms in particular. The improved weather in 2013 allowed dairy farmers to repair grass swards which were damaged by last year’s weather and to refill their empty silage pits and barns with good quality forage stocks. Further, falling arable prices will reduce feed costs over the winter and coupled with a significant increase in milk price over the last year as world demand outstripped supply, dairy farmers should see better returns in 2013, although it has to be said they did come from a very low base in 2012.
So, all in all the weather was so much better in 2013 than 2012 and that alone gave farmers a feeling of optimism, but the reality is that the “hangover” from last year’s weather is probably going to be felt in this year’s profit and loss accounts. But with most winter crops safely in the ground and beef and milk prices remaining firm, there is hope for most that 2014 will prove a more profitable year than 2013.

James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells

T: 01749 683381

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