Why crop budgeting is essential for farmers to make a profit at tillage
The Teagasc costs and returns forecasts can help growers forward plan, writes Shay Phelan
Crop budgeting is an important aspect of tillage farming especially in times when margins are so tight.
The Teagasc Costs and Returns booklet, which is produced each year, can help growers to forward plan, however, it is not a definitive guide to profitability of each crop.
Being able to compare potential returns from the different crops is a vital piece of business planning and may well prevent farmers from losing money on crops. However the suitability of the particular crop to the field or area is also an important consideration, as is the potential market.
What is apparent from the latest Teagasc crops budgets for 2017 is that achieving top yields is necessary if crops are to make a profit.
While fertiliser prices have dropped and will subsequently have a positive impact on crops margins, the crops that are the heaviest users of fertiliser inputs such as potatoes, fodder beet and maize are going to potentially benefit more than crops that use less such as cereals or proteins. However, profit will also be determined by yield and selling price.
The highlighted figures that Teagasc use are target yields, growers must make decisions as to how to achieve these yields rather than assuming every field will actually reach these target yields. This may result in certain lower yielding fields or parts of fields being dropped in 2017.
There are options for growers in the GLAS scheme to replace the income from these areas with more stable and certain incomes which are more likely to return a profit.
The challenge for the tillage farmer is to ensure that these target yields are achieved in as many fields as possible as it is apparent that lower yielding fields will quickly lose money.
While higher value crops have greater profit potential, they also have the highest potential to generate a loss due to higher costs.
Although output prices are largely out of the farmer’s control, there are some safeguards that can be put in place to ensure profitability.
Where possible farmers should look at contracts for crops, while this may not generate the highest profit it may prevent losses. It also allows the grower to plan with more certainty.
Forward selling or contract prices eliminate one element of risk from growing crops
Growers also need to be careful in using the Teagasc Crops and Returns figures as all margins are based on owned land, only common direct input and machinery costs are used to calculate the gross profit, lime costs and wild oat control for example are not included.
The cost of storage can be substantial are not included for crops such as potatoes, fodder beet and maize.
The quoted margins are for crop delivered into the yard only.
Farmers also need to take into account that crops must also make a contribution to fixed costs such as electricity, insurance, motor costs etc.
Teagasc analysis shows that fixed costs on farm are hugely variable and so the net margin can be substantially different from the estimated gross profit.
The final draft of the Teagasc Costs and Returns, with updated input costs and prices, will be available in early 2017.
A full version of the Teagasc crop calculator including potatoes, fodder beet and maize is available at www.teagasc.ie/crop
Shay Phelan is a Teagasc advisor based at Oak Park, Co Carlow
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