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Meeting the wheat net margin challenge
Meeting the wheat net margin challenge
by Arable Farming August 2020
AHDB has recently analysed two years of winter feed wheat data from its Farmbench programme, which shows farms with large differences in yield and cost of production are achieving performance levels inside the top 25%. Marianne Curtis reports.
Changes to the subsidy system, price volatility and the impact of the weather are just a few of the current and future challenges for wheat growers. To stay ahead of the game, achieving a top 25% performance will enable growers to limit the damage or, better still, produce a profitable crop during challenging times.
AHDB examined business performance data in Farmbench from the last two harvest years for enterprises growing feed wheat and found that:
- Broadly speaking, of the difference in net margin between the top 25% and the rest, 50% was due to higher income and 50% was due to lower total costs.
- Wheat yield was the biggest influence on crop income.
- Higher wheat prices did not guarantee better net margins, particularly if costs were high.
- Machinery and equipment costs had a bigger association with net margin than yield or price alone.
What is Farmbench?
Farmbench is a free webbased programme that allows farmers to enter physical and financial figures for their arable and livestock enterprises.
The tool provides reports on how their enterprises have performed and how they compare to other similar enterprises, both locally and across the country.
This is not to say that other costs are not important, but rather that their individual effect on the bottom line is smaller. However, making smaller adjustments across the whole cost structure could add up to a similar result, says AHDB.
The table (above) shows what the top 25% were achieving on average and the range for harvest 2018 and 2019, focusing on winter feed wheat. More than 630 winter feed wheat enterprise results have been recorded on the AHDB Farmbench comparison tool over the last two years.
The top 25% group had a net margin (crop income less all costs including depreciation, a
value for unpaid labour, rent and finance but excluding subsidies) that was 170% higher than the middle 50% performing crops and over three times higher than the bottom 25%.
So, is yield king and costs secondary, or is price a more significant factor in reaching top 25% margin performance?
The average yield achieved by the top 25% was more than 0.5 tonnes per hectare higher than the middle 50% and more than 1t/ha above that of the bottom 25%.
Although the top 25% got higher yields on average, there was a significant range from 7.5-12.8t/ha. Many of the bottom 25% and middle 50% of crops produced similar yields to the top performers. Likewise for the same margin. For example, at about £460/ha net margin, one crop achieved it with 7.7t/ha and another with 11.8t/ha in the same year.
When it came to wheat prices, the top 25% received £7-£10/t more on average than the bottom 25% and £5/t more than the middle group. But, looking at
the individual results, crops with prices of £122-£180/t returned net margins represented in each performance group.
About the figures
- Figures derived from AHDB Farmbench data: ahdb.org.uk/Farmbench
- Farmbench results from 2018 and 2019 harvest years
- Figures used are conventional winter feed (Group 4) wheat excluding any seed or hybrid variety crops
- Based on results from 630 crop enterprises
- Benchmarks are ranked on full economic net margin
- The performance groups were kept separate for each year rather than representing an average over the two years
- Full economic margin includes all non-cash costs machinery and buildings depreciation, unpaid labour and the rental value of owned land
- The average area of feed wheat grown in the top 25% was 148 hectares for 2018 and 2019. The range is 8ha up to more than 950ha
In the field: Tom Spence, Ashbury Farms, Wiltshire/ Oxfordshire border
Tom Spence farms 800 hectares with his brother Bill, north of Swindon. Land is predominantly chalk with a small proportion of clay.
Cropping is 380ha wheat (extra this year where oilseed rape had failed), 90ha oats, 85ha spring beans, 65ha winter barley, and 148ha spring barley. Some land is also under stewardship.
Growing Skyfall, Gleam and Costello for feed, Mr Spence achieved an average yield of 10.2t/ha in 2018 and 10.45t/ ha in 2019. In 2018 he achieved an average price of £156/t and in 2019, £163/t.
In net margin terms, Mr Spence is in the top 25% of farmers growing feed wheat who are using AHDBs Farmbench benchmarking programme.
He says: I like the concept of knowing where all the costs are, not just variable but all the fixed costs.
His success is due to a number of factors.
Yield wise, we are fairly consistent. We have moisture retentive ground; importing muck and chopping straw has built up good organic matter levels and maintained our nutrient indices.
A tight rein is kept on fixed costs.
There are just two of us. We are happy to run older, well-maintained kit. We are not changing it every five years. We recently sold a self-propelled sprayer and bought a trailed sprayer so we can utilise our second tractor better.
We have all our own grain storage, which helps longer term if there is a rising market.
We try to aim for premium markets where possible. We sell spring barley, milling wheat and oats through Openfield and consistently achieve specs.
Mr Spence says machinery sharing may become more of a necessity going forward. They use two agronomists to keep âon the ball with costs and find Yagro a âvery useful tool.
Margin
For example, there were individual results in the top, middle and bottom groups, all with a wheat price of about £140/t. However, all those in the bottom group made a loss at that price and all those in the top group had a positive margin.
Price alone has a weaker influence than yield on net margin. A combination of price and yield as well as any income from straw is a strong driver of the bottom line, says AHDB.
The top 25% had a total cost of production at about £1,150/ ha in the last two years. The bottom quartile costs were about £400/ha more.
Of the £400 difference, total overheads accounted for more than £330 of this.
Labour and machinery costs were the major proportion of these costs. But, this analysis has shown that labour and machinery costs are a stronger driver of net margin than yield or price alone, but still no guarantee of top 25% net margin performance overall.
Optimising yields to the level of inputs and keeping a tight control on machinery and equipment costs will go some way to achieving top 25% performance.
Paying attention to detail in these and other areas, such as marketing strategy, growing for a market, production system, crop rotation etc., will take you all the way to the best performance, says AHDB.