March Results - What should we expect?

At the time of writing this article I have now had the first of the March 2024 results come through. So, what have we seen from the farming industry in the financial year to March 2024?

It will come as no great surprise that most dairy farmers showed fantastic results for the year to March 2023. The average milk price increased by 12-15ppl for the majority of dairy farms, resulting in profits more than doubling in most cases.

However, since then we have seen a decline in the dairy industry. This decline varied depending on the milk contract that the farmer was tied into. Some Arla contracts have seen a reduction of over 10ppl to March 2024, putting them back to March 2022 prices. Some Tesco contracts however, which did not see the peak prices, have experienced a less extreme decline of around 4ppl on average, putting them back to somewhere between the 2022 and 2023 milk prices. To put this into perspective, the reduction in milk income (and profit) for a farm producing 2 million litres could differ by £120K in one year dependant on their milk contract.

As a result, we envisage the decline from the incredible March 2023 year to vary heavily depending on the milk contract. However, as we all know the bottom line does not come down solely to milk income, and that cost control and efficiency both play a very important role.

Cost control and future contracts helped some farmers to excel in 2023, especially those receiving near 50ppl on their milk but still buying straights and commodities at below spot market prices. However, a year on, and future contracts mean a much lower milk price with commodities costing more than the prior year, and, in many cases, more than the spot price. This puts pressure on cash flow for some within the 2024 financial year, particularly when coupled with the drop in milk price.

The wheat and arable market have also seen big swings in commodity prices. Wheat prices at the end of March 2023 averaged £200-£260/t (depending on milling quality) compared to £175-£235/t in March 2024, which is a 15% reduction. This has impacted the cereal turnover in the accounts that we have seen so far.

In addition, fertiliser prices were upwards of £500/t in March 2023 compared to £280/t in March 2024. This means that fertiliser in opening stock and for the spring drilling is a far greater expense then seen previously, therefore tightening the cereal margins seen to March 2024.

This may all seem to be doom and gloom, but it was well believed within the industry that the period of high output prices would be short-lived.

Cashflow for farmers has tightened over the last 12 months. A consideration in the short-term, for those under self-assessment, is the July payment on account. Payments on account are based upon the assumption that the previous year’s taxable profits will continue into the current year. In a year where farming profits are likely to be reduced, payments on account should be reviewed and potentially adjusted, to ensure that they are not overstated. This can have a significant impact on cash flow.

Farmers averaging can also provide a repayment of tax paid at higher rates in the previous year.

Should taxable profits decline (after considering capital allowances on plant and machinery) then an overpayment to HMRC will not be refunded until after the tax return has been processed.

If you wish to talk this through, then please do get in touch with your usual Albert Goodman contact.