Cash flow and cost of production figures vital in tricky arable season

Knowing your farm’s costs of production and managing cash flow will be crucial for arable farmers this year after a tricky season for some crops, compounded by poor commodity prices.

Monitor Farm Scotland programme manager Grace Reid says: “While winter crops did well and we had an early harvest, dry weather has meant some spring barley crops have failed to make malting quality because of high screenings and in some cases elevated nitrogen levels. Combined with low commodity prices, these challenges are putting further pressure on farm cash flow and raising concerns for many growers when planning for the years to come.”

Scottish Agronomy’s Zach Reilly, who is involved as an agronomist on some of the Monitor Farms, adds: “Many farmers will be facing lower incomes, or still have a shed of barley that they have to get rid of. Now people are starting to look at buying spring inputs these issues will have a massive knock-on effect. The biggest problem for many will be cash flow.”

Zach says key to coping with these challenges is to focus on what you can control. “That includes managing income streams, understanding your cost of production, planning finances in the short term, and making informed decisions. Staying positive is just as important.”

He believes cash flow issues will delay input purchases, and the lower value from spring barley which is sold for feed rather than malting is likely to have a bigger impact over the longer term.

“Work out your cash flow, and then look at ways to ease the pinch. Knowing your costs of production will also mean you can consider what to do as this will be unique for every farm. For instance, many growers are looking at other crops, have planted more oilseed rape and are increasing the area of winter wheat too.”

He says help with working out cash flow is available as part of FAS Specialist Advice. “Under this, ScotGov will pay up to £1,600 towards business support and you only pay the VAT, which you can claim back. The help is specific, so if, for instance, if you need only a cash flow, you can do just that.”

For working out costs of production, AHDB knowledge exchange manager for cereals and oilseeds Adrian James adds that the AHDB Farmbench service is free to arable levy payers.

“It is totally confidential, and you can use this just on your own, benchmarking yourself against other UK growers, or you can choose to join a local group where you can share and discuss your costs, again in confidentiality.

“The people who get most out of Farmbench are those in groups, as you’re sharing and discussing your farm performance with eight to 10 others in the same area. It’s a really good discussion, helps keep on top of your costs and it’s social too. You’ll usually find there are plenty of others in the same boat as you.”

Adrian adds that this may be the year to look at something different rather than doing what you’ve always done. “Some growers have found new opportunities or niche crops which potentially offer better returns, but these crops aren’t for everyone. Look carefully at everything before you jump in and assess the risks.”

He suggests preparing cash flow budgets for two years might also be useful. “It will give a better idea of where you are going and the potential squeeze points as lower prices may be with us for some time – but then you can’t forsee what’s going to happen.”

Over the longer term, Zach advises looking at what can be done to boost resilience on-farm, particularly for soils. “The main issue for spring barley was that crops produced plenty of tillers, but when plants became stressed because of lack of water, tillers did not reach full potential. In severe cases, this happened to the majority of tillers on the plant, and we found that screenings were generally worse on lighter soils.”

Working on soil health by building soil organic matter and addressing soil structural issues will increase the resilience of farming systems, he says, but it is a long-term effort. “We will have weather like this again, so build resilience into soils so the water will be there for crops, whether it’s chopping straw or growing your own biomass if you can’t bring it in. Soil health is something we can do something about.”

Grace adds: “Knowing costs of production and having good insight into your cash flow situation will definitely help on-farm this year. Make the time to properly look at your situation rather than continuing the same practices. There is help and advice available, and agricultural accountants and banks are well aware of the situation for Scottish growers, so talk to them sooner rather than later if you are concerned or think you might have some financial challenges. Early conversations can open up options, alleviate stress and help you plan ahead with more confidence.”

• Farm Advisory Service link to business advice help: https://www.fas.scot/specialist-advice/
• AHDB’s Farmbench service can be accessed here: https://ahdb.org.uk/farmbench or contact Julie Clark at Julie.clark@ahdb.org.uk or 07778 144273