Data adds clarity to true production costs – Agronomist & Arable Farmer
Lincolnshire farmer Mark Stubbs has upgraded his data management capability to help him keep an even closer eye on cost of production ...
A recent Hutchinsons grower survey revealed some interesting figures when it comes to cost-of-production estimates. One-quarter of those questioned estimated their winter wheat cost of production at £140-£170/t, but 75% admitted they didn’t know.
This didn’t come as a surprise to Hutchinsons farm business consultant Will Foyle, with fixed costs more complicated to calculate than variable ones. But a slight revelation is the figures for the 25% who did know. Defra data show the majority of UK arable enterprises have had cost-of-production figures above £175/t in recent seasons.
Mark Stubbs of Home Farm, near Calcethorpe, Lincolnshire, was keen to explore the opportunities to record machinery operations to allow him to calculate precise cost profiles for cultivations at both field and sub-field levels.
Having first used Omnia five years ago to Terramap some of his fields, he progressed last season to the fully integrated farm management platform. “Now all of my tractors and implements are logged in Omnia’s virtual shed, with known costs assigned to create operations.”
He is using the platform for all his data management; it gives him a much clearer and more accurate picture of the cost of operations and cropping scenarios across the farm. “Once it is set up and all the data is in Omnia, it is easy to play around with the different tools and create scenarios with associated costs,” he says.
“We used to try to do this with spread- sheets, but they are made for accountants, not farmers, so it was never straightforward to do or particularly easy to interpret. But that has all changed with Omnia.”
Real-time field data
The mobile Scout app has taken this a step further, he says. “Field operations can now be uploaded in real time on the go, with just a few taps to record start and finish times for each piece of machinery used.
“This has been a game-changer for us in terms of efficiency and time saving. Gone are the days of logging this on the team WhatsApp and then having to manually update records in the office later.”
Omnia also enables Mark to undertake scenario planning, with the ability to ana- lyse profitability based on potential market fluctuations. Using the virtual grain silos in Omnia, he is able to record any trading activities for a crop, so it is possible to track forward grain sales for harvest 2025, for example.
Now, alongside Mark’s variable costs, which automatically fall into Omnia together with his machinery costs, trading activity and combine yield maps, it is possible to produce sub-field profit and loss maps.
He refers to a significant shift in Manor Farm’s cropping strategy last season, drop- ping oilseed rape from the rotation in favour of the legume fallow Sustainable Farming Incentive (SFI) action.
“We looked at the overall implications of this on gross margins, but also how to balance fixed costs with large areas of land committed to SFI, as we are aware that the subsequent reduced combine use may lead to increased costs and depreciation.”
Highlighting differences
Forecasted whole-farm net margins for harvest 2025 painted a ‘marginal’ picture for many businesses, Will says, while Hutchinsons analysis of Farm Business Survey data for cereal farms larger than 500ha illustrated the gaps between the top 25% and average performers, with fixed costs being a particular area of difference.
Wages and fuel were both 17% lower in the top quartile, possibly reflecting the use of lower-disturbance cultivation systems, and larger machinery covering more hectares with fewer staff, he suggests.
Machinery repairs were also 23% lower. That could reflect the use of newer equipment, although with only a 7% difference in depreciation, it was more likely that top performers were running a more balanced fleet, with a good understanding of what each machine was costing and a clear policy to replace machines before repair bills became too large, he says.
Figures could also be skewed where businesses are hiring equipment or using con- tractors, thereby resulting in lower depreciation and repair bills, he notes.
The business performance module in the Omnia digital farming platform allows for retrospective calculation of the cost of pro- duction of field operations. The machinery tool takes this one step forward, explains Will, providing a simple way of calculating actual and accurate operational machinery costs before committing to field operations for individual farm businesses based on its own figures.
“This is done by breaking down all the components of cost related to running a particular piece of machinery to realise the true, not approximate, costs of operation,” he says.
He points out that within the machinery tool, depreciation ranges take into account the age, value and areas/hours worked a year, alongside servicing and repairs to give the fixed costs of a particular piece of machinery, so instead of an approximate figure being used, as was previously the case, real costs can be used.
Work rates, alongside diesel and labour costs, are then calculated giving a total cost per hectare for running both the tractor and machine.
“This cost can then be added into the virtual machinery shed in the business performance module on the Omnia platform and when overlaid with yield and variable costs, it gives the real costs of producing a crop,” he says.
Critical need to scrutinise In the past, the need for such scrutiny wasn’t so important, but Will feels UK ag is now at a turning point.
“Growers have been able to grow crops that historically performed well on their farm and relied on a rotation that will see yields and margins balance out over a number of seasons.”
He feels that in many cases, farmers have been in a net balance of taking rather than giving to the soil. He points out that organic matter has proved absolutely pivotal for harvest 2025. “We are now at a significant turning point that may well define the success or failure of many businesses over the next five to 10 years.
“Against the backdrop of next-to-no subsidy, crippling fixed costs, weather volatility and uninspiring markets, it is inevitable that a number of farming businesses will come under pressure.
“The last time we were in a similar peri- od was the late 1990s and we got through that thanks to the ability to scale, reducing labour overheads and removing the worst areas of land to set aside. We also didn’t have the same pressure from grassweeds or the climate, and had better government support. The path forward looks more. uphill this time around,” he says.
Dangers of depreciation
Big variations in fixed-cost structures exist between farms. Depreciation, in particular, could be a ‘silent killer’ for some businesses, says Hutchinsons farm business consultant Will Foyle.
“While a focus on yield is Important, understanding and being able to control overheads or fixed costs is key to financial integrity. We know that a higher wheat yield improves financial output, but it is a lower level of fixed costs that will make the greatest difference to performance/ha,” Will says.
“Fixed costs can sometimes get overlooked, so it’s definitely an area where more needs to be done. Unlike seed, fertiliser, fungicides and fuel, you don’t get an invoice for depreciation, so some farms often don’t really know what a machine is actually costing them, until they go to change it in three, five or 10 years’ time.
“When wheat prices hit £300/t three years ago, there were some big profits made and tax incentives to reinvest into new machinery. But that machinery was expensive following several years of rising prices, and some may be feeling the effect of that in terms of depreciation.”
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