Farming at the Allerton Project

Agriculture is an industry that has always experienced periods of boom and bust. The extent of price fluctuation is seldom dependent on one single factor alone and increasingly the factors that exert influence on the market are global. War, famine, drought, flooding, subsidies, taxation, politics, pestilence and market speculators cause prices to vary, to the extent that the price of the final product can bear little resemblance to the cost of production of its raw agricultural ingredient. 

If we take a five-year average price of milling wheat of £100 per tonne, the wheat cost element of a 750g loaf of bread is five pence. For a short period in 2008 the wheat price on world markets was double this with some analysts predicting £300 per tonne. As usual, a series of factors contributed; a drought in Australia, disease in parts of the USA and Europe, increased demand from India and China, flooding in the UK, news that world wheat stocks were at a 30-year low, export restrictions imposed by Kazakhstan – a leading grower of high quality wheat - and last, but not least, speculation.

A year later and the price of wheat in the UK is back to around £80 per tonne. This was the result of a record world and European harvest, partially contributed to by the cessation of set-aside and a slow-down in demand in the Far East. A traumatic harvest due to persistent rainfall at Loddington typified harvest for many in the UK. 15 days of continual rainfall during the first half of September led to a dramatic reduction in crop quality, down-grading many crops to animal feed.

Meanwhile, fluctuations in the costs of energy have significantly increased the costs of inputs. The prices of fuel for cultivations and drying, crop protection sprays, and fertiliser have climbed steeply. About 40% of the total energy input required to grow a crop of wheat is expended in fertiliser manufacture, increasing the cost per hectare from £120 to £279 for fertiliser alone. It is difficult for farmers to turn production on and off or to switch crops. Most farms have invested heavily in equipment to grow a few specialist crops which suit their locations and soil types. Crop planning is rotational so sequences are planned years in advance and each crop is harvested only annually, so once the seed is in the ground the farmer is committed.

There are steps a farmer can take to help smooth the peaks and troughs, which we implement at Loddington. Firstly, by purchasing inputs in advance we can lock into a known price and ensure that we are not priced out if a key input goes into short supply or becomes unavailable. Tightening regulation, particularly from the European Union regarding pesticides, makes this an increasingly realistic danger. This can work against the farmer should the cost of an input subsequently fall. On the other hand, we can also forward sell part of our anticipated production. Where the market rises, again, this works against the farmer but in the market conditions we experienced in 2008, having sold at 2007 prices was a very wise course of action.

The fluctuations in wheat prices over the past 18 months have caused many hedge funds to lose large amounts. The best, most risk-averse approach, is a spread of sales. There is little doubt that the price at which you sell has more bearing on your profit than on either the crop yield or the cost of inputs.

But all this assumes the harvest is safely gathered in and in 2008 while the UK recorded the biggest wheat yield in the nations history harvest was a traumatic affair. At Loddington our harvest always begins later than most of the rest of the country. Being 500 feet up on a heavy soil means our crops ripen later, indeed it’s not uncommon for us to read in the agricultural press that some farms have finished harvest before we’ve even begun. This means that once the crops are ready, we need to be in a position to move rapidly, and consequently we used to operate two combine harvesters.

But as these aged we replaced them with one much larger machine, releasing labour to help with corn carting, grain drying, of which there was much, and stubble cultivations. After seven seasons work even the best machines become vulnerable to wear and tear so any breakdown seriously threatens the harvest, which is what happened to us, and with a difficult harvest in progress across the nation, leasing, borrowing or even buying a combine harvester at short notice is a near impossibility. That said we did get all our quality milling wheats into the shed before the worst of the weather and a new machine is on its way for harvest 2009.