Reducing risk is essential…take stock of the season
“If you don’t invest in risk management it doesn’t matter what business you’re in, it’s a risky business.”
That quote from Gary Cohn, a former director of the US Economic Council, was used by Shay Phelan at Thursday’s Teagasc Crops Forum.
While Shay commented that weather factors dominated the 2020 season, there are numerous decisions that can be made to reduce risk and plan for a more stable income.
For example, wet weather reduced the winter cereal area this season and Shay outlined out of a total of approximately 280,000ha of combinable crops 140,000ha were planted with spring barley.
Add in another 35,000ha of winter wheat and 175,000ha of cereals needed to be harvested over approximately three weeks.
Shay commented that at many of the weather stations throughout the country, August is the second wettest month so there is a large amount of risk involved in getting crops cut at the appropriate time.
He suggested that, where possible, farmers should try to spread risk across crops.
Expanding on this further, he added that spring feed barley was also the least profitable crop in the Teagasc E-profit monitor from 2017 to 2019.
There was no single crop that was the most profitable or the least profitable in each of the three years, and the differences in profitability were largely outside of the farmer’s control, Shay explained.
However, spring feed barley was on the low side of the margins and Shay noted that there had been a decrease in spring feed barley area because of the low margins involved. 2020 resulted in a return to the crop for many, but he encouraged growers to plant a more profitable crop in the coming season.
Drive for expansion
Shay also commented on the drive for expansion and asked farmers to take a serious look at their books before renting extra land. Commenting on data from the Teagasc E-profit monitor, he said: “75% of the farms in 2016 lost money on their rented land and in some cases they lost substantial amounts of money on rented land.”
He also commented that: “Very few farmers made more than €500/ha or €200/ac, yet a lot of land is rented for around those figures.
While rented ground can help the business, we really need to ask is it worth it?
“The role of rented land has to be questioned. Is it just for expansion or is it actually contributing to the farm business and allowing you to plan your rotations?”
He added that farmers renting land often opt to plant profitable crops like winter wheat or winter barley and rotation can sometimes be lost.
Shay also urged farmers to sit down and examine their books and examine the farm business over a period of time before rushing into sowing crops.
He advised farmers to see how crops have performed in different fields over a period of time and to decide on a good rotation.
He also listed forward selling of grain, premium contracts and forward purchasing of fertiliser as ways to help to stabilise income.