Rising prices and reduced costs see profits for arable farms

High wheat prices and reduced costs see net profits double for arable farms in the East Midlands
High wheat prices and reduced costs see net profits double for arable farms in the East Midlands

A survey of more than 250 arable farms shows that rising prices for wheat has seen profits rise for their businesses, while costs fall.

The survey, which encompassed 20,000 acres of land in the East Midlands, found that average net profits more than doubled in the last two years, rising 113%.

While the farms harvested 3.4 tonnes per acre on average, the typical selling price of wheat rose from £145 per tonne in 2017 to £165 for the 2018 harvest.

This meant that the farms saw gross profits rise by £27,200 on average.

As well as the effect of rising prices, farms also saw a reduction in their costs, according to the survey by East Midlands accountants Duncan & Toplis.

Although labour and fuel costs increased, the cost of machinery repairs, property repairs, rent and bank charges and the cost of depreciation reduced, meaning total overheads per acre fell by 2.2%.

Overall, this meant average net farm income rose from £31 to £66 per acre while average farm profit margins grew by £27 per acre. Farm gross margin across the whole area farmed rose to £280 per acre.

Head of Agriculture of Duncan & Toplis, Mark Chatterton said last year proved to be a 'very productive' year for arable farms in the region, primarily due to the wheat price rise and higher divisible surpluses from contract farms.

“There were also some interesting movements in overhead costs: As expected, labour costs rose 10% due to higher pension contributions and the need to pay higher rates to attract and retain good staff,” he said.

“The cost of fuel rose, but machinery repair costs stayed the same, while machinery depreciation fell to the lowest we have seen in the last 10 years.

“Farming businesses we’re working with have been carefully planning their capital expenditure and they’re able to keep machinery longer, which is helping to drive down their costs.”

Mr Chatterton added: “Last year, our contract farming clients managed to achieve the magic figure of £150 per acre for total labour and machinery costs, so overall a reasonable net farm income of £66 per acre was achieved.”

Looking forward, Duncan & Toplis said that the average wheat price for harvest 2019 may not reach the £165 per tonne seen last year, but average wheat yields may be better, so the gross margin might be preserved.