Farming – is it a way of life or a business?

Well it is clear to me that farms to be sustainable in the long term need to be treated as a business and that business needs to provide financial security in order to provide a way of life.

Many farm businesses start their financial year either in the spring or the autumn and for most businesses this is a historical decisions based on tradition when farms were taken on by tenant farmers either at the start of the growing season (spring) or after the crops had been harvested and the growing season had come to its annual end (autumn). For many farm businesses who start their financial year in the autumn they should be thinking about planning for the new financial year and be preparing to start putting together their financial predictions (budgets) for the new year.

Financial predictions must be based on two basic principles – first of all the physical performance factors, which can be realistically achieved and expected and these would encompass factors such as size (yield) and quality and also efficiency factors such as margin over purchased feed, lambing percentage and output to direct costs. These factors are relatively straight forward to predict as long as you are realistic, however the second basic principle is a lot harder to predict and this is the price you are going to get for your produce and when predicting price I would take a more cautious view.

Predicting prices for your produce will involve many different factors which encompass the whole global market. The difficulty here is something could happen many thousands of miles away unknown to you at first which could mean the supply and demand could be altered (up or down) and this would have an effect on the price for your produce.

A drought in America could mean a global shortage of wheat and the supply goes down which would mean the price of wheat goes up or a large country falls out of favour with the rest of the world and an embargo is imposed and feed products cannot be supplied and therefore demand falls and the price goes down.

However, do not be put off investing some time in completing this exercise as it is better to know how well your business is doing than not as then you are in a position to do something about it if you need to make changes.

Chris Jones, Farm Business Training Consultant