Strutt & Parker has updated its arable farm profitability model with current market data to create forecasts for harvest 2023 and 2024.
The modelling tool uses universal assumptions to provide an outlook for the sector, providing figures for average-performing businesses and higher-performing farms.
It shows that the net margin before rent and finance for an average-performing farm for harvest 2024 is expected to be £258 per hectare, up from £208 in 2023.
For higher-performing businesses, net margin is forecast to be £475 per hectare, compared with £416 this year.
“We have updated our assumptions based on current market conditions,” said Tom Coate, farm consultant with Strutt & Parker.
“Estimated profits for 2023 and 2024 are higher than the forecasts we made in June, which will be welcome news as Basic Payments continue to reduce. However, net margins remain well below 2021 and 2022 levels and much closer to where they were in the late 2010s.”
He added: “The estimated net margin of the higher-performing business for Harvest 2023 is twice that of an average-performing business (£208/ha vs £416/ha), and it is forecast to be 84% higher for Harvest 2024 (£258/ha vs £475/ha).
“While this is not a new message, it once again highlights the benefits of growers understanding their costs of production and monitoring fixed costs.”
“Working capital requirements for farms, which are variable and fixed costs, have risen by 40% to £173,604 in 2023 for an average performing 131 ha farm, compared with the 2021 baseline. We expect this to reduce in 2024 but still remain 28% higher than the baseline. This puts extra pressure on a farm’s cash flow and finance requirements.”
For more information go to www.struttandparker.com