Farm Ireland
Independent.ie

Wednesday 7 December 2016

Rental costs must make sense

Tillage

PJ Phelan

Published 09/11/2011 | 06:00

While many areas in the east and north east have considerable areas sown in good conditions, farmers in north Tipperary have been less fortunate. The harvest was longer than ideal, with never more than two suitable days together, and this has been followed by similar conditions for sowing.

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Despite this, there have been some mad prices paid for conacre, which is in nobody's interest. A tillage farmer will only survive if their costs are such that there is a realistic potential for profit. A person letting land is unlikely to get paid if the person renting does not cover his costs and certainly won't have him as a customer the following year. Given that the cost of standard inputs for growing winter wheat this season is likely to exceed the price of 2t (before any additional charges for lime, land maintenance, additional labour or contractor charges and fees) and the cost of machinery will exceed another tonne, what should you pay for land? The answer may well lie in your own crop records -- forget the bumper yield and look at average yields. Remember to factor in price volatility and our unpredictable harvests.

Economy of scale is one of the major justifications for increasing sowing areas. However, as long as I have been working, I don't think I have met anyone who has achieved it.

Most have got caught in a merry-go-round of renting more land to get better use out of existing machinery. Then they find that they are over machine capacity and end up renting more land to cover machinery costs.

The pressure of having to increase acreage generally results in having to pay over the odds in order to get new land. Once the new land is secured, the word goes out and all his other landowners want similar money.

One person that appears to have got it right was a young farmer with 150ac of tillage who approached me with a request to plan a machinery purchase strategy to upgrade a run-down outfit.

After much agonising and plotting as to where he might get extra land to rent, he decided to buy one piece of equipment and go out on hire with it in order to cover contractor charges.

More than 20 years on, he still has the same piece of equipment, upgraded several times, farming his own land, renting the occasional bit of land when opportunity occurs and covering all contractor charges with his hire income.

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Land is more likely to be abused if the person renting is unsure of continuing to rent into the future. There is generally no interest in building soil fertility and lime deficits are rarely rectified. There is little interest in minimising compaction and rarely any attempt made to provide solutions to existing compaction issues.

Cropping programmes are planned to take the maximum out of the land in the current year and there is no value put on rotational benefit for subsequent crops. Management of perennial weeds and wild oats is only carried out if it will pay in the current year.

So back to the original question. How much should the farmer renting pay or indeed a landowner be prepared to accept? If the land has a realistic potential for 4.5t/ac for winter wheat (despite the fact that most people have seen a lot more 3.5t crops than 4.5t ones) and it costs the equivalent of 3.5t to grow it, the grower, if he is willing to do a pure breakeven job, can pay up to the price of 1t of wheat, predicted to be €135 next harvest. If a landowner is offered more than that, he should be looking to see a full set of accounts, as would any other professional business, before taking the client on.

Patrick J Phelan is a member of ITCA and can be contacted at pj.phelan@itca.ie

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