Browns Farm 2015
Brown’s Farm 2015
The cash position of many arable farms will be eroded significantly over the next 18 months. Farmers will need to plan carefully to minimise the impact, writes Tim Young, divisional partner at Brown & Co’s Huntingdon office.
Better wheat yields this harvest are welcome, but will provide only short-term relief for many farms’ borrowing requirements. The cash position is set to tighten considerably, especially on farms with rent to pay.
Our farm budgeting model, Browns Farm, demonstrates the position many progressive growers will face through to the end of 2017. Browns Farm is based on a typical Eastern Counties unit growing a mix of combinable crops and sugar beet on 386ha of cultivated arable land, 160ha of which is rented.
Most of the farm’s crops were near to budget this harvest, but wheat crops yielded 10-15% more, producing an additional £25,000. That has helped the nearby position – there is still £100,000 of headroom on the overdraft (see chart) and no grain has yet been sold.
Despite that, the cash position will continue to tighten, as the additional wheat tonnage is insufficient to cover the poor market price. The current overdraft limit of £400,000 could be breached by spring 2016, before declining by a further £100,000 towards the end of the 2016/17 financial year.
At first sight the situation doesn’t look too bad. Net farm income for 2016/17, including BPS receipts, is in the red, but only by about £15,000. However, this ignores the fact that well over £52,000 has been allocated for private purposes, including personal drawings, school fees, pension contributions and tax, and a further £26,000 in other bank drawings arising from changes in capital items, mainly due to machinery purchases and financing. These figures will be typical for many arable businesses, though growers will need to scrutinise their own 2016/17 budgets to obtain an accurate picture. The overall effect at Browns Farm shows cash declining by almost £80,000, rather than £15,000. We would advise the business to lock down on spending where possible, with private drawings outlined above being the first target. Pensions contributions should be reviewed in the short term, and a review of overall drawings will now be appropriate.
The next area to address is rent and finance costs. At just under £140,000 these were serviceable before the recent commodity price crash, but now stand out as a problem area.
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