Cereals 2022: Budget better to help ease inflation pressures

Arable growers need to budget carefully, control cashflow and think hard about environmental schemes that take land out of production to help cope with cost inflationary pressures from higher fertiliser and fuel prices.

Experts say growers should be scrutinising their finances for harvest 2023, looking at profit margins and rising working capital needs as the price of nitrogen fertiliser has nearly trebled over the past 12 months and fuel prices have soared.

Richard Means, partner at consultant Ceres Rural, said good returns should be available for harvest 2023 as commodity prices for wheat and rapeseed have risen sharply, but pressures could intensify in future years with the declining Basic Payment Scheme (BPS).

“Growers need to be on top of their figures and react when the opportunities arise, such as a dip in fertiliser prices or a spike in the wheat price,” he told Farmers Weekly at Cereals 2022 in Cambridgeshire.

See also: Cereals 2022: 6 steps towards a sustainable farming future

Under pressure 

The slide in BPS subsidy payments from £233.30/ha in 2020 to zero in 2028 will put pressure on growers, while many environmental schemes are looking less attractive as commodity price have risen sharply, with feed wheat up 50% over the past 12 months at just above £300/t.

Mr Means added that growers need to be cautious before choosing Countryside Stewardship or Environmental Land Management (ELM) schemes that take land out of production when commodity prices are so high.

“The last thing growers want to do is to jeopardise their wheat production when wheat prices are more than £300/t,” he said.

Matt Culley, NFU crops board chairman, said that growers need to make sure every operation they do is justified in the future and be clear that it has a positive effect on profit margins.

He has calculated that overall input costs are running 50% higher than last year, with machinery and labour costs up as well as fertiliser and fuel.

He has already cut the use of nitrogen fertiliser by 15% across the 650ha he farms in north Hampshire, and also is investing in more liquid nitrogen storage to be able to buy when the price is attractive.

In addition, he is widening his crop rotation by getting back into oilseed rape after a four-year gap and growing more forage for an anaerobic digestion plant to reduce his financial risk.

“We are spreading the risk by diversifying the rotation and going for Mid Tier Countryside Stewardship, but only on the right land such as chalk banks,” he said.

More pulses

Chris Gemmill, farm manager at the Cereals event host farm Law Farming, said he is growing more nitrogen-fixing leguminous crops this season, and is looking to cut diesel costs by reducing cultivations in the future on the 1,500ha farm.

He said the farm has put more pulses in the ground this year to save on nitrogen fertiliser, while these crops give a good entry and better establishment for a following autumn cereal crop.

The focus ahead will be to cut diesel costs by reducing cultivations on the farm, which uses a mixture of minimum-tillage and some ploughing.

“We are looking to save on cultivation costs by using shallower passes and move away from ploughing,” he added.

Rob Wilkinson, director at consultant Strutt & Parker, said budgeting and monitoring cashflow will be key in the future, and although income from crops will outpace the rise in variable costs for harvest 2023, the volatility in commodity prices is a concern.

He suggested growers buy fertiliser more frequently rather than in one lump and offset these purchases with a forward grain sale to maintain good cashflow, and also to look to more spring cropping to reduce risk and try out more low-input crops such as rye and oats.

“The margin will be up next season, but the risk is also up, and so growers can not afford any crop failures,” he said.

Environmental options

Environmental stewardship will still have its place on farms, but only on poorer marginal arable land, and so growers should be cautious before tying themselves up with Countryside Stewardship schemes for five years while commodity prices are so high.

“Growers need to implement environmental schemes, but only where they are really appropriate,” he said.

Andrew Wrath, who heads up the food and farming team at Savills, said growers will have to build cost inflation into their budgets and know their costs of production, average yields and their best mix of cropping to try and reduce the risk to their businesses.

“Growers need to accept the current cost inflation and then mitigate this by taking out forward cover, like selling grain forward,” he said.

He agreed with others that growers need to be cautious about entering environmental schemes with commodity price so high, but they may still be applicable for poor-yielding, marginal arable land.

Within the first tier of ELM, the Sustainable Farming Incentive (SFI) arable soils standards opens this year and growers can be paid an introductory level of £22/ha or an intermediate level of £40/ha for maintaining 70% of their land in winter cover, adding and testing for soil organic levels and growing cover crops for the intermediate level.

Consultants say these payments are relatively low compared with the historic BPS, but they do not need land to be taken out of production as happens in Countryside Stewardship and a future SFI arable land scheme.

With nitrogen fertiliser prices so high, Syed Shah, regional agronomist at crop consultant Niab, said the focus for growers should be on improving the efficacy of nitrogen fertiliser uptake, and advised winter wheat growers should apply 75% of their nitrogen early in the spring.

“Most of the nitrogen should be applied before the end of March, especially if the weather turns dry in April and uptake is then limited,” he said.

His work has suggested applying 50kg/ha in February, 50kg/ha in early March and 75-100kg/ha in late March, and then using additional foliar nitrogen later if growing high-protein milling wheats.

“A nitrogen level of 200kg/ha for feed wheat should be appropriate in most conditions,” he said.