Lower wheat prices and higher running costs cut net profits for the region’s arable farmers for harvest 2019.
On average, farm profits reduced by £23,000, but agricultural accountants at Duncan & Toplis warn that profits from the 2020 harvest could be more severely reduced following wet weather and flooding from autumn to spring
The Duncan & Toplis survey covered a total of 20,000 acres of farmland in the East Midlands with year ends between September and January.
The survey found that average net profits for the 2019 harvest fell from £163 to £133 per hectare (ha).
This is partly due to a reduced average selling price of winter wheat of £148 per tonne, down 10% from £165 per tonne for harvest 2018. This was exacerbated by rising costs, with total overheads increasing on average by 1.8% to £451/ha.
As a result, average net farm income reduced by 18% from £163/ha in 2018 to £133/ha.
Farm gross margin across the whole farm area reduced 3.9% from £692/ha in 2018 to £665/ha, but Duncan & Toplis warns that harvest 2020 could see farm gross margins reduce to just £392/ha.
Head of Agriculture at Duncan & Toplis, Mark Chatterton said: “After a very strong 2018 harvest, most farmers in our area will be disappointed to see their profits reduce ahead of what will be a very difficult harvest this year.
“While the fluctuating price of winter wheat has had a significant impact on farming income over the last three years, other crops (apart from oilseed rape) have contributed well in terms of yield and price and this has helped many.
“Some farms are still hoping to achieve better prices for winter wheat which they have stored, but trading was as low as £120 per tonne in September when many had to sell due to limited storage capacity.
“When it comes to overheads, fuel costs rose but depreciation reduced and many businesses invested in property repairs as well as road and building projects. Generally, farms reported less overtime payments in autumn as the weather limited workload, but this will be picking up now as farms do what they can to make up for the wet winter.
“While harvest 2019 saw profits reduce, we expect that many farms will face an even more difficult harvest this year. Costs will be higher as the unique weather required the use of expensive power harrows to work the land this spring and the impact that flooding had on the planting of winter crops will affect income.
“We are forecasting that farms will experience as much as a 50% drop in gross margin and a 30% drop in net profit for 2020. This will make the next few years very difficult and it’s likely that farms will be more dependent on subsidies as a result. Farms should be looking at ways they can reduce their costs by putting off investments in property, repairs and capital projects and look into drawing on private capital.
“Given the serious challenges ahead, I’d urge farmers to seek out professional advice and support immediately.”