Tuesday, February 27, 2024

Nailing down true cost of herbage seed crops

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Industry pushed to the brink by soaring costs.
Rather than demanding a certain price per kilogram, Feds is looking to raise awareness of the true cost of seed production.
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Federated Farmers has designed a tool to help arable farmers find the true costs of production to ensure the financial viability of their herbage seed businesses.

Soaring production costs have pushed New Zealand’s herbage seed industry into a cost-of-living crisis,  Federated Farmers herbage seed chair and Methven farmer John McCaw said.  Herbage seed production – which is crucial to all New Zealand pastoral farming operations – has become marginally profitable for cropping farmers and without a reset will not be sustainable in the future, he said. 

Concerns about the sector prompted an industry-wide look at costs and ways to ensure sustainable production, and the development of a cost-of-production spreadsheet that offers growers a unique tool with which to analyse all relevant costs associated with growing ryegrass and white clover seed crops and running the farm.

It even allows for a return on investment.

Its release coincides with a recent Foundation for Arable Research (FAR) gross margin analysis for ryegrass seed production.

That analysis showed a break-even result on seed production – but a profit from associated lamb trading.

“Herbage seed production is a risky business and farmers deserve better than break-even,” McCaw said.

The Feds spreadsheet includes lamb-grazing income, but McCaw acknowledged not all arable farmers are willing or able to trade lambs.

“Grazing lambs requires capital, labour, and infrastructure quite separate to that of seed production. 

“Having ryegrass in the system facilitates lamb grazing but this should not be used to justify a lower seed price to growers.”

Gross margins have their place, but McCaw is concerned they are not the right tool in this instance.

“It’s all about the cost of production; gross margin analysis is simplistic and useful only for considering one crop option against another.

“Each crop must carry its fair share of the unseen cost of running a farm including wages of management, rates, insurance, and administration.”

Being able to allocate a share of all those additional costs, at about $1300 per hectare, to an otherwise simple gross-margin assessment was a lightbulb moment for McCaw.

“I’ve been doing gross margins on our farm for 20 years, thinking I understood our cost of production.

“I wish I’d had this tool earlier. I think we would be farming very differently now if we had.”

McCaw suggested it could be that the plant breeders’ focus on herbage production has come at the cost of seed yield.

Later harvesting varieties often yield less seed and require additional water and fungicides. 

Yield gains have plateaued while grower prices have languished.

“It’s been happening over many years but now production costs have risen steeply, and we have a cost-of-living crisis in the herbage seed industry.”

The extent to which prices must increase to return growers to profit is of concern to both growers and merchants. 

“We need a reset, not just an inflation adjustment. 

“The question is how to achieve that without pricing ourselves out of the international market.

“Rather than demanding a certain price per kilogram, Feds is looking to raise awareness of the true cost of seed production,” McCaw said.

The spreadsheet at Arable-tool-kit-gross-margin-1 aims to ensure both sides have the information they need to make an informed decision.

Meanwhile, as growers do their calculations on what prices they need to get to stay viable, the increased costs will impact related industry such as dairy pasture renewal. 

One number cruncher has come up with at least $3.50/kg for perennial ryegrass seed, $8/kg for white clover, $3.50/kg for forage brassica and $6-$7 for cocksfoot to be sustainable.

Meanwhile there is confidence in domestic grain prices as milk price futures push upwards.

If dairy prices perform as expected this should also help to support pricing and confidence in the grain market. 

On the other hand, it will impact heavily on dairy farmers’ feed budgets.  

Grain and feed prices are well above their historic averages, but higher milk prices should help dairy farmers feel more confident in purchasing feed.

The latest regional feed prices have local feed wheat trading in Canterbury at $675 a tonne, up from $426/t this time last year, while Southland is $650, up from $417 and Manawatū $700, up from $463.

Feed barley in Manawatū is trading at $720/t, up from $453 this time last year, Southland $650/t, up from $413 and Canterbury $660/t, up from $425. 

Maize grain in Manawatū is at $720/t up from $442 this time last year and Waikato also $720/t, but up from $414.

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