ANALYST INSIGHT: HOW ARE MARGINS LOOKING FOR HARVESTS’ 22 AND 23? Written by Megan Hesketh - Senior Analyst – Arable
We are fast approaching harvest 22 and looking now to harvest 23 for cropping decisions, but the cost and margin picture looks very different to this time last year. UK feed wheat new crop futures (Nov-22) closed yesterday at £340.10/t. This is almost double the price from this time last year, where new crop futures (Nov-21) closed at £178.75/t (18 May 2021). A tight supply and demand balance for grains across the board, intensified by the outbreak of war between Russia and Ukraine, has driven values to record highs in recent months.
Though input costs have been rising too. This season-to-date (Jul-Apr), UK produced AN (34.5% N) prices have averaged £601.00/t, up 138% (+£349.00/t) from the average over the 2020/21 season. Today, I explore how this changing picture has impacted on gross margins. The aim of these figures is to not directly indicate how much profit can be made by each crop, because variable costs will differ by farm. It is more to understand a difference in profitability by year, and to support 76 DIRECT DRILLER MAGAZINE
decision making for harvest 23 cropping. These figures may also give an indication of what the UK planted area may look like too.
feed wheat are top performers in both scenarios. Though the difference in the price paid for fertiliser makes a large difference in gross margin.
Harvest 22 – costs high but prices higher…
For the milling wheat premium for harvest 22, this uses an average for the 2021/22 season to date. This season’s average has been higher on the year due to the current tight supply and concerns around milling wheat availability. As such, milling wheat gross margins look attractive for harvest 22 especially in scenario 1.
Using two scenarios, profitability between crops can be assessed for harvest 22. For many businesses, the story will rely on price paid for fertiliser and this impact on variable cost for harvest 22. The first scenario takes an average season-to-date for UK produced AN 34%, Muriate of Potash and Triple Super Phosphate. The second scenario takes the top recorded prices this season for these three fertilisers, to compare profitability. Perhaps to no surprise with strong global wheat values supporting UK feed wheat futures, milling wheat and
Oilseed rape follows closely behind, considering high prices supported from inelastic demand for rapeseed and rapeseed oil. However, new-crop (Nov-22) prices are lagging previous May-21 highs, as supply is expected to improve globally next season. However, crush demand is set to be firm also, which could keep balances tight in the first half of the marketing year. ISSUE 18 | JULY 2022
