Beeting your head against a brickwall?
The 11th July option deadline, once offered by British Sugar in June, is passed and neither the NFU nor British Sugar yet really know who will plant what sugar beet in March 2009 and with what enthusiasm, says David Bolton of newly formed David Bolton Partners.
In November 2007 David wrote that materials and transport costs alone approached £700 per hectare then and correctly predicted the change to the beet price escalator. In April 2008 "To Beet or Not To Beet" hinted at a 2009 crop price of £25.60 per tonne before transport and bonuses. Growers were encouraged then to focus on their individual locations, yield potential and current cost structures – in their task of securing strong, stable, long-term profitability for their farms.
"The clamour continues. Materials and transport have certainly rocketed in price beyond reasonable expectation in the last seven months. One commentator now demands £27 per tonne, another vocal Fen farmer £30 per tonne whilst NFU and British Sugar move to and fro within their relationship. No grower however will refuse even a few pence more - or better still a pound or two – if it can be obtained."
David Bolton advises growers to first focus first on location. "Transport cost versus transport allowance slips out of line as oil flirts with $150 per barrel, and UK taxes now make it a £120 job just to fill a Discovery tank! The closer to the factory you grow the better your opportunity at any particular beet price. To compete from further away you do need to be a better grower for the same return."
Next, he urges growers to look at yield potential and its link with revenue.
"Make up your own table by taking your just released Ten Year average figure and put two tonne steps three times on either side of it. Remember Ten Year averages do contain the dreadful campaigns of 2001 and 2007, pulling your ten year average down. With Rhizomania resistance, modern seeds and fungicides your future yields will lift (but watch the Bolting resistance figure). Multiply by £25 per tonne and £26 per tonne and then pause to reflect on the yield component on revenue compared with the price contribution. Try £24 and £27 too. Remember all these values are ex-farm."
"The yield achievable is the result of the soil type and local climate. The grower's skills and timing do all the rest. An unwelcome and unnecessary legacy from the past is the attitude once taken to "excess" ('C') beet. In 2008 every single beet has the same value, it no longer drops off sharply. Growers should review their practices to get the most from their beet fields. Gone are the days when it didn't pay to clear the last few rows, and at £25 or £26 or £27 per tonne it makes an expensive feed for cows, sheep or pheasants. Excess quota beet could be back in 2009 but at £20 per tonne not £5", he notes.
Thirdly, David Bolton says to look hard at your current cost structures (as well as the other qualitative points in "To Beet or Not To Beet – e-mail info@boltonpartners.co.uk for your own copy".
"Growers with 40 tonne yields will never compare with 80 tonners on a cost-per-tonne basis. Some growers pay rents, some have debts. Others employ labour and contractors whilst others don't. Heavy land early-lifters will take different decisions to the 'light land late-lifting spring barley followers'. Each must consider his own situation over the whole rotation too, not just the 2009 crop. However both will be concerned about future fuel price escalation. To 're-fuel' that debate I point out the grower is exposed to unrestrained red diesel price increases for 2009, so ask would it not be unreasonable for British Sugar to index link the transport allowance to 2008 Derv prices so that in 2009 it does not leave the grower with that one too."
David Bolton suspects many growers have planned 2009 already for fertiliser ordering purposes and will have been shocked at the cash flow impact and price of both nitrogen and compounds.
"In any event you could do worse than join Oliver Walston in Whittlesey, near Peterborough next Friday (18th July) – but share a car if the journey is long - before you do confirm your individual decisions by 15 August. He allegedly grows 80 tonnes per hectare," he concludes.
For further information, please contact David Bolton, David Bolton Partners on 01953 714030 or on his mobile 07860 742440.
