With harvest three weeks early, this years’ ‘normal’ conditions no longer apply in farming, says Virgin Money Agriculture Director for Aberdeenshire, Rona Jordan. This includes budgeting for higher borrowing to meet strong cattle and sheep prices, disappointing cereal prices and disruption to malting barley demand.
Planning business finances for the future has always been part of farmers’ extraordinary range of skills. But in the face of soaring input costs, and the increasingly unpredictable weather, forecasting your working capital requirements for the coming year has become much more complex.
The completion of harvest well before the end of August has actually given an early indication of some of the big uncertainties within the sector. The view from many Aberdeenshire farmers I speak to, is that while oil seed rape yields have been excellent, barley and wheat yields and quality are mixed, and very dependent upon soil type. There are issues around cereal collections and subdued demand from maltsters, resulting in prices looking uncomfortably low. For many, high levels of screenings are seeing any malting premium eradicated.
With input costs remaining consistently high, low grain prices are clearly unwelcome for arable farmers, but for other sectors of the North East farming community, lower cereal prices might bring some relief in the form of low or at least stable feed costs.
With weak demand for malting barley, depressed prices and mixed quality you may be thinking you’ll get a better return feeding grain, but how will cash flow be impacted? There will be no grain cheque in October and there will be expensive store cattle to purchase. It may be that the store cattle price is in fact driven higher by farmers looking to feed grain rather than pay to store it. At the time of writing, I’ve been hearing that those faced with rejected malting barley may struggle to find a local buyer for feed grain. With current low prices, some may wonder if it’s worth growing malting barley next year, so consideration must be given to cash flow implications of a change in rotation.
Whilst pig, poultry and dairy sectors are cyclical these producers have a laser like understanding of their costs of production and with weekly or monthly sales, cashflow can be more predictable. In the red meat sector where production cycles are longer this can be more difficult to manage.
Early this year, the cost of purchasing store cattle reached an all-time high, and although finished prices are now improving to match this increase, the rate at which prices changed must focus attention on margins and costs of production. With levels of investment required to purchase livestock never higher, maximising the return on investment is key.
As an agricultural banker, I have rarely seen such an increase in demand for borrowing support for more working capital, and from new borrowers. For many farmers, the traditional cash-flow models just no longer apply.
For banks like ours, it is imperative we provide farmers with the financial support needed to maintain output, invest with confidence in the short and long term, and adapt successfully to evolving market conditions.
Each farming business is different, so if there are concerns, we are encouraging farmers to begin conversations early, and to provide us with the most accurate data possible, even if unsure what borrowing you might need. This will enable us to arrange the right financial package specific to your business. So if you know you’re not selling your barley for malting as expected, let us know. Well-prepared cashflows, up-to-date accounts, and a clear understanding of stock and input costs can make a big difference in getting appropriate facilities in place before financial challenges arrive.
Here at Virgin Money, we have huge confidence in our food producers and as a bank with over 180 years’ supporting this sector, we base decisions on a positive long-term view.
In my 20 years working within agricultural banking, I know farmers have seen poor harvests, weak malting barley demand, and fluctuating livestock prices. My role is to help them consider the future impact of decisions made today, and I am privileged to provide this experience-based advice to sustain their resilience and agility.