Farming with Numbers
With continued price volatility in tandem with ‘ag-flation’ at its highest in recent memory (the latest figures for cereals and oilseed rape production are showing input cost increases of just over 40%), this growing season is going to be a high investment and therefore high-risk year.
There are going to be several difficult questions asked, that perhaps haven’t had to be addressed previously. How do I approach cropping this year; do I crop at all? How do I make the best use of my fertiliser and how much am I willing to spend on my crops? Am I going for a low-in, average-out strategy? Am I sticking to the same programmes or adjust my attitude to risk? Do I hope the grain markets remain in my favour or explore some way to hedge my sales? Am I going to focus inputs and efforts on productive fields or reducing spend on fields that have previously proved more difficult and variable in their performance? It’s a long list of questions that aren’t straightforward or quick to answer; particularly if using excel or a pen and paper.
Today there are more reasons than ever for farmers to plan, budget and manage risk in a more detail than they perhaps have ever had to.
The stakes are getting higher, but equally technology and assistance in aiding decision making are improving. The rewards are vast for those who are willing to take the time, to stand back, and to approach things in a more analytical and strategic way.
Despite the increased risk and highest investments this year, good margins should be achievable for those with a business strategy that has a stringent approach the risk management and a sales strategy. A plan in line with the cash flow requirements and profitability targets for the business.
So how can the data your collect help with decision-making?
Farming is often driven by emotions. What you read, whom you’re influenced by, what’s been done in the past and gut feel can all have an impact on decisions you make. Being able to take the emotional element out of the equation, replacing that with data and facts will inevitably lead to improved adaptability in a time when many know the risks are high, but few know how to mitigate them effectively.
As the season starts, make sure you are as informed as possible as to your farms exposure to risk. It might sound like a long and drawn-out complicated calculation, but the answers are in your farm data.
Risk management in farming has traditionally been fairly informal. Varieties are often chosen from a trials list and with yield as the primary metric and factors like location, disease rating and end market considered. Rarely is the performance in relation to the actual farm considered, and this is often because the farms own specific figures aren’t calculated. I believe the need to understand the true performance of the varieties you’ve chosen for your farm, in terms of Cost of Production, not just yield, should be the primary decision maker as to whether to stick to a variety or choose or trial something new.
Ag-flation has led to higher levels of working capital needed this season and potentially steadily increasing over the next few year. This may cause cashflow complications for some, leading to increased risk. Having a strong plan that can be monitored and reviewed is going to be essential in navigating these economic stormy waters. 2022’s harvest seems to have been profitable for most, particularly those buying inputs early and selling late. But having a sensible, logical sales strategy in line with your cash flow forecasts is going to be key. Knowing what you have left to sell, what the potential value of your commodities are, what your budget sales figures mean for your finances and committing to forward contacts in line with these expectations will all guide your decisions and give you more confidence and improved cashflow awareness. Couple this with your expenditure on inputs and the ability to flex budgets in line with price increases gives the ability to quickly gauge what capital is going to be required and when. Set budgets and explore different scenarios.
Are you going to be throwing everything at every crop and field, and treating your fields the same this year?
From what we’ve seen this season, drilling has been a success with a lot of wheat, barley and OSR progressing nicely. However, as the season progresses, having flexible plans and a willingness to adapt as the situation changes is going to be pivotal. Having a budget, knowing your breakeven figures and therefore when to write off a crop or pull back significantly on spend and even increase input spend where it will gain a return will be increasingly important. Having that insight into how inputs are converted to yield and what that’s costing will help make an informed decision at a crop, variety and field level.
You can use your farm data to understand and therefore maintain a risk-reward balance on income. Be that digging into the detail of consistently poor performing fields to calculate their profitability versus a stewardship option or exploring the cost versus income of lower input crops to help spread your exposure to risk. Using your farm's data can aid these decisions in the most informed way.
It’s amazing what you can do when you make use of your data. Contact us to see how YAGRO can help you navigate the years ahead.