You are: Home > Why Hire
WHY HIRE

Going round in circles?

The Background to the issue

  • It is difficult to track, quantify and assess the fast moving prices and costs of the arable margin
  • Recent harvests have not been sufficient to maintain most arable businesses in a viable position with many delaying machinery purchases and living off their depreciation.
  • The general lack of profitability has driven many to restructure through contract farming agreements and more recently by setting up labour and machinery syndicates.

Current progressive farm Structures

  • A typical machinery syndicate will consist of
    • 3,000 to 5,000 acres consisting of 4 businesses
    • Machinery held in a Limited Liability Partnership
    • Managed by the son of one of the businesses usually aged early thirties
    • Value of machinery per acre around £120 to £150
    • One combine backed up by a contractor if required
    • Whole area block cropped
    • Gross margin on all crops equalised between the businesses
  • These syndicates have resulted in driving down the costs of labour and machinery per acre from an average of £131 per acre and Top 25% of £118 per acre down to an average for syndicates of £96 per acre for the 2007 harvest.
  • These restructured businesses should now be well placed to capitalise on the arable price increases however have these price increases been exhumed by higher input costs?
  • Wheat is 55% of the arable area in the Grant Thornton Top 25% group therefore the impact of the wheat gross margin can be assessed.
  • Input costs of seeds, fertilisers and chemicals on average increase by 58% from 2006 to the 2009 harvest.
  • The wheat margin for the 2006 harvest for the Top 25% group was £173 per acre (average was £141) and this increases to £286 per acre for the 2009 harvest - an increase of 65%
  • However fuel costs are likely to rise from £19 per acre to £39 per acre - an additional £20 per acre or 105% over the 3 year period. Add to this an average 4% overall increase in fixed costs and the impact on the Net Farm Income is an overall increase of £57% from 2006 to 2009.
  • However it can be argued that the £134 is not a sustainable figure to fund farmer drawings, tax, capital repayments on loans and reinvestment. Therefore if the 2007 harvest Net Farm Income of £237 is taken as a benchmark then the results are a reduction in profitability from £237 per acre to £210 per acre - a reduction of 11%
  • With increased costs eroding the higher prices the focus must not be taken off streamlining businesses, maintaining a balance between
    • cost reduction
    • timeliness and efficiency
  • The use of machinery must be flexible in modern farming businesses as areas may change from season to season
  • High HP tractors used for short periods in the autumn may be better hired
    • to remain flexible
    • reduce capital tied up
    • tax relief on rentals
    • access to up to date models

Information and financial examples supplied by:

Surpassing Your Requirements
Call today on +44 07831 508898 to find out how Dryland Hire can meet your needs
Dryland Hire, an Agricultural Machinery specialist, offering competitive one stop bespoke hire solutions to ensure you are using the latest equipment. Enabling you to reach your maximum potential and overcome day to day problems.
 
Fendt John Deere Annaburger Bobcat Cat Bailey Trailors