As we face into another production season, growers are becoming aware of the deficits in bank accounts because of the grain price collapse in 2014. The big global harvest is the primary cause and that is always a potential risk in the volatile enterprise in which we operate.

Price is always the driver of profit. What happened in 2014 could equally have happened in 2013 and there is nothing to say that it could not happen again in 2015, unless farmers do something to send a different signal to the market.

You are all aware that high prices cure high prices, but low prices are less likely to self-correct because farmers are slow to change. And once an acre is sown, it will be marked down in the harvest estimates as having a normal or even high yield potential when harvest estimates are being calculated.

High prices drive up acres and production intensity and those things together tend to drive up production in the following season.

Higher output takes the gloss off of price, or a good year with a high planted area could murder price in the following season.

The problem this year is that there is a perceived surplus. And if you are in an exporting country, that can mean no market for your crop.

So, in order to ensure that there is a market, producers sell for less and that begins a downward price cycle. The problem we have is that producers are much more likely to react to high prices by producing more, than they are to low prices and producing less.

In general, producers the world over leave it to nature to produce a smaller crop to correct prices and that’s why it can take a few years to get the correction that is needed.

While profit is seen as the main challenge to profitability and survival in tillage, there can be little doubt but that the major challenge is discipline.

The biggest residual problems from this harvest will hinge on land rental and the consequences of paying high rents, frequently to just secure payment of entitlements.

Most bank accounts will question the viability of doing this again in 2015. But growers have always been selective or creative in attributing costs to rented land to help persuade and justify the decision.

However, when you move real costs out of one field, they must still be paid for from other fields.

Growers’ costs now indicate that spring barley is costing about €500/ac to grow before land costs. Winter wheat costs about €600/ac and winter barley is somewhere in the middle, all excluding land.

As one man often says to me, “there is no legislating for stupidity”.

If your spring feed barley makes €135/t green this year, it will take 3.7t/ac to break even at €500/ac total costs. Some have lower costs but even at €450/ac, the breakeven yield is 3.3t/ac.

And while there were some great yields this year, it is the average yield that counts. It is only in years when prices are low that growers freely admit the magnitude of current production costs.

Production costs are real and so are land rents when they are added on top.

With costs at €500/ac and an average yield of 3.7t/ac, there is no spare cash to pay for rented land.

So this should be the first thing under the microscope for all growers, especially given the changes coming in 2015.

Once-off consolidation

Consolidation, or stacking, was been in widespread use for the past eight years in the context of entitlements. This will no longer be an option post-2015.

So a farmer who has 160 entitlements up to now and owns 120ha will have to continue to rent 40ha if he/she wishes to continue to use 160 entitlements.

However, if some or all of this rented land does not have very high yield potential, growers have a once-off opportunity to shed some land in 2015 and consolidate all of their new payments onto fewer entitlements.

This could be as little as the 120ha owned in this case. But fewer entitlements will have higher value.

While tillage farmers are aware that their entitlement values will be reduced from 2015, some may be less aware of the option to shed acres in 2015 if those acres make no financial sense through active farming.

So a person who submitted 120ha in 2013, and who then established a payment base of €54,720 in 2014, could establish a starting entitlement value of €456/ha in 2015, but this will be reduced by the initial and convergence deductions.

But this will also mean that that farmer will have to have 120ha every year to cash those entitlements.

If 20ha of the 120ha was poor rented land and hardly worth having, it could be dropped in 2015.

This would give this farmer fewer entitlements with a higher value.

In this case, the farmer would establish 100 entitlements with a starting value of €547.20 before deductions.

This higher value will be subject to a slightly higher cut, but this is likely to be much less than the losses associated with expensive conacre.

Poor land

So shedding acres is a realistic option for land that is not washing its face most years.

However, if you own all the land and some of it is not performing, then planting must be questioned.

A poor field or farm is always unlikely to leave a return and fallow should seriously be considered as an option for this type of situation.

Farmers are eternal optimists – they have to be. It is an inherent requirement to be able to take the bad with the good.

But planting land that will only produce 2.2t to 2.5t/ac, even in a good year, must be questioned. If a deficiency can be corrected, fine, but go to fallow or grass if the problem cannot be fixed.

Don’t be afraid to drop out the poor acres – your farm will benefit from it, especially if you can use these areas for greening.

Fallow land is both a crop (one of the three) and ecological focus area (EFA). One hectare of fallow is one hectare of EFA, while it takes 1.43ha of a protein crop to give 1ha of EFA.

Crop choice for 2015

What you choose to grow in 2015 will be partly driven by crop diversification, but it should also be driven by economics and risk.

Most farmers realise that they will need two or three crops in the coming years unless they choose an equivalence measure through the new GLAS scheme.

While this is an option for one-crop producers, interest in the option would not appear to be great.

This is partly because of the uncertainty relating to GLAS and also experiences of the pernickety rules that applied in previous environmental schemes.

There is also uncertainty about the percentage of the total area that must be sown to green cover, the number of years involved and the ability to rotate the planted cover.

Crop choices for 2015 must be a balance between the perceived potential for profit, the need for a specific number of crops and the need to ensure adequate EFA.

This mix will always fall back to the individual farmer and the adviser. A crop mix should be sensible and capable of building into a workable rotation over time. This must be workable across soil types and land blocks.

Other issues must be considered also. Our decreasing capability to control septoria tritici in winter wheat means that this crop carries a higher risk. If the SDHIs fail against septoria, this will leave a very big problem.

So crop choice must be about practical considerations also. All wheat growers must do what they can to reduce septoria pressure by only planting resistant varieties early (if you can get them) and then leaning heavy on rates once fungicides begin. Getting this part of the choice correct is more than equally important to greening.

One other consideration for the coming years is the premium payable on protein crops. The availability of a €250/ha top-up on the area growing protein crops is a significant benefit in crops that can be very variable in performance.

So proteins must be considered where they are appropriate. Beans better suit heavier land, while peas will do better in sharper land.

Beans are often discarded as an option because of their lateness. In most years, this is not too late, but harvest can be pushed back into a time when planting is the priority.

In these situations, the option of whole crop bean silage must be considered and evaluated. Indeed, the same option should be considered for lupins, which may be a very attractive protein source.

Protein crops have the added advantage of leaving nitrogen in the ground for following crops, thus reducing nitrogen requirement.

This is a particular plus for winter crops, but should not be considered on land where malting barley is to be grown.

Forward selling

One other thing that needs to be reconsidered in the coming years is the attitude to forward selling.

As with shares, there is a risk of a subsequent fall, as well as a rise, but this needs to be adjudicated relative to the price on the day and the likely pressures in the market. Whenever prices offer a margin over all costs, a sale should be considered.

There are still bad memories from 2012, but that was the perfect storm. The quality collapse was the unpredictable issue.

But this year, most growers forfeited €20/t to €25/t because they did not sell forward. The market must be judged against what it is capable of doing and not what you want it to do.

Forward selling should only be considered for 30% to 50% of a normal crop. More might be considered as one gets closer to harvest when you know the grain is in the field, but do not pass 70%.

Forward selling has risks, but this year showed that not selling has risks also.

The relatively small number of growers who did sell forward are now to be paid green prices of €155 to €165 for barley and wheat, respectively. This makes a big difference in a year when yields were good.

Even if the balance of the crop was sold at €135 to €140 for green barley, the forward sale helps the average price greatly. And it is all about the average, as is the case with yield.

Malting concerns

A number of malting barley-only producers are looking towards catch cropping within GLAS as a means of avoiding the need for two or more crops by using the equivalence measures.

The immediate concerns hinge around the commencement of GLAS, acceptability into the scheme and the fine print that may go with the rules.

This will be a five-year scheme so you may be committed for that period, but it remains to be seen as to what percentage of the land will have to be planted to green cover in the autumn. It is also important to know if this percentage can be rotated around the farm to help improve soil all around the farm.

On a practical note, malting barley growers are concerned about the consequences of having catch crops within a rotation. The importance of this point is reinforced by the ever-tightening specs for malting barley.

Basically, could green covers make the achievement of lower proteins more difficult or unpredictable over time?

The same issue arises if other crops are introduced into the cropping programme. The crop diversification requirement requires either more crops or the GLAS measure. Where more crops are grown, this will mean less malting barley is produced.

Having a range of crops will also add concern as to the potential for increased rejections over time as the condition of the soil improves.

Could we see a situation where we will have less and less malting barley produced within spec, forcing the need for imports? If this happens, the greening measures would be a disaster.

One alternative still worth considering, given the varied requirements of the modern industry, is the possibility of producing a winter crop for malting.

Even spring varieties sown in the autumn would be a different crop in a malting barley context. If such an option was available to growers, it would help the crops diversification issue, if it could be worked into the system by Boortmalt.