Net farm income during the latest harvest season fell by 18% in the East Midlands, according to a survey by accountants and business advisers Duncan & Toplis.
The survey – which covered 8000ha of farmland – found that average net farm income for the 2020 harvest fell to £109/ha, down from £133/ha the year before. But the 18% fall was still better than the 30% drop predicted a year ago.
The main cause of the income reduction was the wet winter and flooding of 2019/20 which was followed by a very dry spring. This caused difficulties establishing crops, with challenging growing conditions further limiting yields at harvest.
Flooding across parts of the East Midlands – including Lincolnshire and north Nottinghamshire – in late 2019 meant farmers were unable to drill much of their winter wheat, leaving large areas of land unused until spring crops could be planted.
Increases in commodity prices helped to offset the cost of the reduced yields, but gross margins still reduced from £665 to £627 per hectare, making this the third year in a row in which profit margins have tightened.
Mark Chatterton, head of agriculture at Duncan & Toplis, said: “Every year, we survey farms in our region with year ends between September and January to identify the overall trends across the sector in the East Midlands.
“After 2016 saw one of the worst arable harvests in a decade, farms in our region saw net incomes rising over the following two years, reaching a peak of £163 per hectare in 2018. Since then however, incomes have decreased again.
“While net income is still far better than the low-point in 2016, it has been a difficult year for many. Fuel saw a considerable fall due to a price reduction and a change in cropping mix to more spring crops and fallow. Machinery repairs and contract and hire costs also fell.
“Meanwhile, depreciation increased slightly. This figure is net of profit on sale and this had a greater impact in 2019 when there were more trade-ins. Property repairs also reduced back to 2018 levels as farmers did not carry out as many planned projects.
Other overheads remained consistent, but rent and finance costs increased as the fall in profits increased overdrafts.
Looking ahead to the 2021 harvest, Mr Chatterton said he expected average yields to be below the five year average once again because weather patterns had not been favourable.
“More winter crops were sown last autumn than in the previous year, but many farmers report having bare patches in their fields as a result of poor drainage. Fortunately, crop prices remain high.
“Most farmers budgeted realistic prices for wheat of £155 per tonne and £375 per tonne for oilseed rape. Forward prices are now a lot higher, but many have locked into a selling strategy already and so they will not reach these higher prices on average.
“On average, farms will also experience the effects of an 15% drop in the basic payment subsidy. I expect that farm gross margins for the upcoming harvest could be £50 per hectare higher at £677 per hectare.”
That said, Mr Chatterton cautioned that net profits would depend on the ability for farms to control costs, particularly labour and machinery costs which should be kept below the ‘magic figure’ of £370 per hectare.
“This might be more difficult to achieve this year, because many investments will have been postponed due to the poor harvests of recent years and there may be new challenges in securing seasonal workers due to Covid-19 and Brexit.”