Newark brings crowds
LAMMA seemed very busy on the first day altough the NSTS stand reported it as being quieter than last year. Certainly it has grown with some 200 additional companies exhibiting. Its coverage also grows in that dairy and livestock farmers are becoming more evident at what was once an arable event. One feature is that organisations are using it as an opportunity for meetings and for one I found my time to visit members very restricted.
There was expected to be a high level of interest in equipment and as far I could judge on day 1 it materialised.
Farming professional body
The reference that Farm Minister Jim Paice made about the need for a professional body for farming is as far as we can tell merely his own idea. He put the AHDB in the frame as a possible candidate and has asked chairman John godfrey to investigate but we see little appitite to extend the current remit into this area. There is some some scepticism within farming circles that this is merely a move to pass more responsibility from government onto the levy bodies – i.e. that producers end up paying through their levies.
Arable incomes to decline
Andersons traditionally update their Loam Farm Model at LAMMA and it shows a deterioration of arable incomes with the potential of moving into the red from farming activities for the 2012 harvest.
A similar picture is panited from the HGCA model farm results as shown below with 2012/3 returns slightly negative.
Impact of exchange rates
The importance of exchange rates for farming incomes has long been recognised, not least because the conversion rate from euros for the Single Payment is so crucial but with the euro looking shaky Andersons have looked at what a fall in the value of the euro could mean. Their analysis is largely to challenge farmers to consider how their businesses would cope. They take a central illustration where the euro declined by 20% against sterling whilst the dollar rose 10%. Their projects suggest on the outputs side of the equation the price of wheat could fall 16% to around £118/t whilst the contribution from the Single Payment would fall the full 20%. On the inputs side costs might fall slightly due to the currency effect but the overall impact on wheat net margins would be a fall of 73%.
Of course all the figures are just indications and it could easily be argued unlikely on the grounds that the euro might not fall 20% without a change of membership and if Greece and other weak economies were to drop out then the residual euro might actually be considerably stronger. Nevertheless the point Andersons is getting across is the level of potential impact.
Machinery depreciation
Figures from the latest Farm Business survey covering the 2010/11 year show average machinery depreciation in England 16% higher than the previous year at an average £17,344. Machinery running costs averaged £15,133, an increase of 13%. Total fixed costs rose 11% to £95,716 per farm so the combined running and depreciation costs represented 36% of total fixed costs (£95,716) and 16.7% of total costs (£206,286).
The type of farms showing the highest depreciation is cropping which includes those with heavy root crop equipment to service and that average came to £30,054 (+19%). The next highest is on cereal farms at £20,590 (+19%). The lowest as would be expected is seen on livestock farms with lowland units averaging £7,043 (+10%).
As we have reported in previous years these data are based on sample information and so cannot be accurately grossed but appear to support the view that depreciation is highest on arable units and so therefore investment in machinery must be. Using calculations which would not bear full statistical scrutiny we can suggest that arable farms may be responsible for nearly half of machinery depreciation and thus investment. Dairy farms then take somewhere up to 20% with livestock at 10-15% and other, including horticulture and specialist pigs/poultry, nearly 10%.
Euro business climate
The latest, January, release shows a small upward movement in the index implying reasonable confidence.
Food inflation to abate
Consultancy EFFP forecasts that food price inflation will drop to below 2% by the second half of the year.
Diesel prices
Red diesel prices held firm at 67.5ppl in December but drivers will know that fuel prices have been rising again in January.
Weather patterns
With December being one of the mildest (remember last year?) the annual weather charts showing deviation from long term trend are available.
Milk matters
Muller are to acquire Robert Wiseman - an all cash offer of £279.5m has been accepted.
Many observers have been predicting further consolidation within the processing sector.
Shop prices
According to the BRC-NIELSEN shop price inflation index for December overall shop price inflation fell to 1.7% in December from 2.0% in November. Food inflation rose to 4.2% in December from 4.0% in November. Non-food inflation fell to 0.3% in December from 0.8% in November.
Global grain
The dryness in South America has provided some support for grain prices but it must be remembered that supplies and stocks of wheat are plentiful and that it has been the maize and soya markets that have been assisting wheat as a competing crop for some uses, notably animal feed. Maize prices have been pushed by requirement for ethanol with some 40% of the crop being turned into fuel. However 2 major US supports expired at the end of the year which could change the picture somewhat over time. The VEETC credit of 45cents a barrel has now finished and unsurprisingly there was an upsurge in production in December to take advantage of the subsidy. At the same time an US import duty of 54 cents a gallon expired – at this time Brazil has high nation prices and so is not impacted but it may yet redirect supply onto the US markets to displace maize supply. However, US maize growers may not fret too much as the US Renewable Fuels Standard has had volume requirements increased and so fuel suppliers must use more alternative fuel – i.e. maize - or buy credits, so that demand may stay unchanged..
Biotech
BASF is set to move its GM operations from Europe to concentrate on the North & South American markets where there is little opposition.
The EU looks set to accept 4GM soyabeans for import and processing but not for cultivation.
Trade deals to incorporate welfare?
The EC has published a ‘Strategy for the Protection and Welfare of Animals 2012-2015’,which argues to introduce animal welfare requirements into trade agreements to allow EU farmers to compete with lower cost producers with lower standards. A campaign to educate consumers as to the high standards is also proposed.
TB areas announced
Two areas in West Gloucestershire and West Somerset have been selected as pilots for the TB badger controls.
Oil demand slackens
The IEA reported that global demand for oil actually fell in the fourth quarter; warmer weather assisted but there was weak economic activity. The Agency has lowered its forecast of demand growth in 2012 from1.3m barrels a day to 1.1m (demand in 2011 was 89.5m b a day. BP say that oil will have a lower importance in the energy demand mix in coming years but they also think that 96% of any increase in energy demand will come from non-OECD countries.