UK farm profits drop, despite record wheat prices

Profits at arable farm will show a significant setback from last year's rain-hurt harvests, with those at dairy and livestock farms down by up to one-half, UK farm officials said in a report termed a "wake-up call".

Crop prices have soared thanks to the poor results from 2012 harvests, which showed the lowest wheat yields in 20 years and smallest potato crop since the 1970s.

London wheat futures hit a record high of £227.00 a tonne last month, and remain at elevated levels, of £213.40 a tonne for the spot March contract, while potatoes are selling on the open market at £312.28 a tonne, more than triple their levels a year ago, according to the Potato Council.

However, the higher values have failed to make up losses in yield and quality, which have triggered price penalties, and higher costs from extra sprays and fuel prompted by the rainy weather, which has continued after landing the UK with its second-wettest year on record in 2012.

Higher costs

"Virtually all inputs have increased in terms of price with additional increases in volume expected for some," Defra said, adding that this was particularly the case for agrichemicals, as the spread of disease encouraged by wet weather "increased the need for more frequent fungicide applications".

"Volumes of fuel are also likely to be higher reflecting additional field operations and grain drying requirements."

The ministry estimated net profits at English cereal farms and broader arable enterprises falling by 11% in the year to the end of next month.

Double whammy

However, for England's livestock farms, the drop in profits will prove even more severe, with dairy and meat producers unable to pass on in full higher feed bills, which have been raised by a double whammy of rising prices and greater needs.

Ave English farm business income per farm, 2012-13, (change on year)

General cropping: £90,000, (-11%)

Cereals: £84,000, (-11%)

Dairy: £50,000, (-42%)

Mixed: £50,000, (-24%)

Specialist poultry: £41,000, (unchanged)

Specialist pigs: £19,000, (-50%)

Grazing livestock (lowland): £18,000, (-44%)

Grazing livestock (LFA): £14,000, (-52%)

Source: Defra

Dairy farms, which topped the national farm profitability league in 2011-12, will show a 42% drop in profits."Not only have feed prices increased, but volumes are also likely to be higher due to a combination of reduced grazing days and lower quality home-produced forage," while milk prices have risen only 1%, Defra said.

For lowland grazing farms, the fall in profits is expected at 44%.

Pig farm decline

However, an even bigger fall in earnings, of 50%, is forecast at pig farms, suffering their third successive year of declining profitability since topping the table of farm prosperity in 2009-10.

"Feed costs, which account for over half of the input costs on these farms, have continued to increase in 2012-13 as a result of higher cereal and soya prices," Defra said.

The comments which follow an estimate from Bpex, the pig industry bureau, that pig producers lost £60m in 2012, despite prices of finished animals rising to a record high of 160.95p per kilogramme in December.

They remained in the red this month, to the tune of £7 per pig, Bpex said.

'Wake-up call'

The National Farmers Union described the Defra data as a "wake-up call for us all", saying that they "shatter the myth that high commodity prices would mean high profits.

"The reality is that price volatility, low profitability and falling confidence does not provide a secure framework for a sustainable food industry," NFU chief economist Phil Bicknell said.

Indeed, the data "underline the importance" of the European Union's farm support programme, the CAP, he said.

"Single farm payments act as a lifeline for many farm businesses and play a vital role when it comes to adapting to increasingly-volatile agricultural markets."

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