Removing the guess work in an unstable landscape
It is fair to say that, so far, 2018 has been interesting and far from consistent in terms of the BREXIT uncertainty, the commodity markets, and of course, the weather. Combined, they have caused an uncertainty for farmers around their business stability. We sat down with Partner, Simon Britton, to discuss what can be done in order to remove the guess work that many business owners face in the current climate.
The Beast from the East hit us in late February and March and will be remembered for many years and for many reasons. The farming sector is still suffering with the consequences of record snow fall and a delayed spring. 250,000 lambs loses were reported over the months of March, April and May and a delayed spring caused havoc in regards to predicting the success of the harvest. We were then faced with (and are still going through) the longest spell of hot weather since 1976; with forage supplies drying up, some of our clients have had to rely on their winter stocks. NFU president, Minette Batters, stated that “This unprecedented spell of weather really should be a wake-up call for us all. It’s a timely reminder that we shouldn’t take food production for granted. Farming is one of the most affected industries when it comes to managing volatility.”
Late last month, the Bank of England announced a base rate increase from 0.5% to 0.75%; the highest level since March 2009. There are, of course, benefits here for those saving; however, with mixed harvest reports and unstable commodity prices, there is an overall atmosphere of uncertainty for those farmers with loans on a variable rate. It has been suggested that interest rates may rise again, not once, but twice, before 2021, taking rates to 1.5%. I have a theory that the Bank of England, with these base rate rises, could be creating a buffer to be utilised in case of a hard BREXIT.
Wheat prices are at nearly £200 per tonne, whilst good news for arable farmers, this will no doubt put further pressure on livestock farmers already short of forage looking to buffer feed. It is hoped that arable farmers do not use this increase in income to mask under performance of their businesses which fundamentally need addressing.
I am not all doom and gloom! There is advice out there and measures that can be put in to place to ensure your business is resilient enough to face the challenges we are up against in this period of uncertainty; and you don’t have to do it all yourself.
I cannot stress enough how important it is to understand your business and how it operates on a financial footing; you would be very surprised at how few people know their business as well as they think they do. This is for a number of reasons, but namely, how much the industry has evolved over the past 10 years. The weather, interest rates and commodity prices are currently in the limelight, however, the impending BREXIT deal, as well as global politics, is set to dictate a change in the way we run our businesses. We must be proactively planning ahead, essentially future proofing our businesses in order to survive.
Initially, I would suggest:
- Assess your business in real time, regularly reviewing output, cost and performance;
- Undertake accurate budgeting and cash flow analysis in order to understand annual cash surpluses/deficits;
- Make informed decisions, utilising sound financial assessment and analysis criteria.
We have a diverse range of clients, all with different needs in regards to farm business management. In order to meet their demands, we have begun to offer bespoke business management packages. For example, we are able to quantify the impact of financial change, speak to banks about capital and identify what the future impact will be on their business so that we can be proactive whilst planning for the next 12-24 months.
For more information about our management packages, please get in touch.