Don’t let your profits dry out

Don’t let your profits dry out​

We are facing a high price but high-cost climate currently, which we discussed in our recent Spring Grain Market Outlook. The inputs into making your crop saleable (such as the cost of drying) should not be overlooked. Gas oil and kerosene prices have risen considerably since harvest last year.

In this analysis I am going to discuss the cost of drying grain:

  • To start with, I am going to explore different scenarios for drying feed wheat to varying moisture levels using gas oil and kerosene, which will include the income reduction from drying the crop.
  • In the second half I am then going to take two of these scenarios and compare them with energy and grain prices last year, to see the difference year-on-year, analysing if the increase in cost of grain compensates for the rise in input costs.
Please note for this analysis I have used delivered feed wheat into East Anglia for Harvest, using the last published price (21 April) of £280.50/t which was published in our delivered survey. For the year-on-year comparison I have used the equivalent price published on 05 August 2021 (£180.50/t).

Moisture percentage matters​

We cannot predict harvest weather but for your wheat to meet specifications, the moisture level needs to be 15%.

The grain drying calculator developed by AHDB Farm Economics assumes that gas oil usage is 1.20L of fuel per tonne of grain dried by 1%. While kerosene is slightly less efficient at 1.32L.

A table showing grain drying scenarios


The four scenarios above are calculating the cost of drying 100 tonnes of wheat to 15% moisture from differing moisture levels with gas oil and kerosene, also taking into account the income reduction. The income reduction is the price per tonne multiplied by the weight lost from drying.

It is no surprise that the less drying required, the cheaper it costs and therefore increasing the true value of your wheat.

Weather at harvest is something that we cannot control. However, input costs for drying does need to be considered in your cost of production calculations.

How does this compare to last harvest?​

Gas oil and kerosene prices are up 76% and 129%, respectively, since harvest last year (1 Aug 21 – 3 May 22, BoilerJuice). However, wheat prices have not risen by the same degree. Delivered feed wheat into East Anglia as at 21 April 2022 is 55.4% higher per tonne than harvest last year.

Table 2 a comparison of drying grain last harvest.


I have compared the two extremes of drying scenarios (20% to 15% and 16% to 15%). Gas oil (+76%) and kerosene (+129%) costs have been revised up year-on-year accordingly.

Although in this snapshot grain prices are up 55.4% year-on-year, margins are squeezed due to the rise in energy costs. Using these scenarios, if you were to dry your grain using kerosene from 20% to 15% moisture, the true wheat value (after drying) would be up by 54.1% on the year. This change is over 1 percentage point less than the actual rise in quoted delivered prices.

Concluding thoughts​

Fingers are crossed for a dry harvest, but drying costs are something that needs to be taken into account when marketing your grain. Although this analysis is just a snapshot in time, it shows that the rise in energy is something that may squeeze margins and impact profitability next season.

If faced with a choice of fuel this year, drying with gas oil this harvest will mitigate some losses as usually the drying equipment is more efficient and gas oil prices have risen by 76%, whereas kerosene is up 129%.

Today's Grain Market Daily on the AHDB website - Don’t let your profits dry out

For information on price direction make sure to subscribe to Grain Market Daily and Market Report from our team.
 

Hindsight

Member
Location
Lincolnshire

Don’t let your profits dry out​

We are facing a high price but high-cost climate currently, which we discussed in our recent Spring Grain Market Outlook. The inputs into making your crop saleable (such as the cost of drying) should not be overlooked. Gas oil and kerosene prices have risen considerably since harvest last year.

In this analysis I am going to discuss the cost of drying grain:

  • To start with, I am going to explore different scenarios for drying feed wheat to varying moisture levels using gas oil and kerosene, which will include the income reduction from drying the crop.
  • In the second half I am then going to take two of these scenarios and compare them with energy and grain prices last year, to see the difference year-on-year, analysing if the increase in cost of grain compensates for the rise in input costs.
Please note for this analysis I have used delivered feed wheat into East Anglia for Harvest, using the last published price (21 April) of £280.50/t which was published in our delivered survey. For the year-on-year comparison I have used the equivalent price published on 05 August 2021 (£180.50/t).

Moisture percentage matters​

We cannot predict harvest weather but for your wheat to meet specifications, the moisture level needs to be 15%.

The grain drying calculator developed by AHDB Farm Economics assumes that gas oil usage is 1.20L of fuel per tonne of grain dried by 1%. While kerosene is slightly less efficient at 1.32L.

A table showing grain drying scenarios


The four scenarios above are calculating the cost of drying 100 tonnes of wheat to 15% moisture from differing moisture levels with gas oil and kerosene, also taking into account the income reduction. The income reduction is the price per tonne multiplied by the weight lost from drying.

It is no surprise that the less drying required, the cheaper it costs and therefore increasing the true value of your wheat.

Weather at harvest is something that we cannot control. However, input costs for drying does need to be considered in your cost of production calculations.

How does this compare to last harvest?​

Gas oil and kerosene prices are up 76% and 129%, respectively, since harvest last year (1 Aug 21 – 3 May 22, BoilerJuice). However, wheat prices have not risen by the same degree. Delivered feed wheat into East Anglia as at 21 April 2022 is 55.4% higher per tonne than harvest last year.

Table 2 a comparison of drying grain last harvest.


I have compared the two extremes of drying scenarios (20% to 15% and 16% to 15%). Gas oil (+76%) and kerosene (+129%) costs have been revised up year-on-year accordingly.

Although in this snapshot grain prices are up 55.4% year-on-year, margins are squeezed due to the rise in energy costs. Using these scenarios, if you were to dry your grain using kerosene from 20% to 15% moisture, the true wheat value (after drying) would be up by 54.1% on the year. This change is over 1 percentage point less than the actual rise in quoted delivered prices.

Concluding thoughts​

Fingers are crossed for a dry harvest, but drying costs are something that needs to be taken into account when marketing your grain. Although this analysis is just a snapshot in time, it shows that the rise in energy is something that may squeeze margins and impact profitability next season.

If faced with a choice of fuel this year, drying with gas oil this harvest will mitigate some losses as usually the drying equipment is more efficient and gas oil prices have risen by 76%, whereas kerosene is up 129%.

Today's Grain Market Daily on the AHDB website - Don’t let your profits dry out

For information on price direction make sure to subscribe to Grain Market Daily and Market Report from our team.
From many perspectives it would be sensible for the grain trade to revert ton16 % base as it used to be 40 years ago. Less fuel in gas, diesel or electric to dry, so a win for current economics and the environment. So AHDB answer me why does grain have to be traded and used at 16% thank you.
 

teslacoils

Member
Arable Farmer
Location
Lincolnshire
From many perspectives it would be sensible for the grain trade to revert ton16 % base as it used to be 40 years ago. Less fuel in gas, diesel or electric to dry, so a win for current economics and the environment. So AHDB answer me why does grain have to be traded and used at 16% thank you.

This is wise.

As I am a young person, I think the 15% was something to do with intervention......which of course now we dont have. And as we dont export wheat at the moment, and all mills will take grain at 16%, we should default back to that to save the planet.
 

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Man fined £300 for bonfire-related waste offences

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Written by William Kellett from Agriland

court-640x360.jpg
A man has pleaded guilty at Newtownards Magistrates’ Court to waste offences relating to a bonfire next to the electrical sub-station on the Circular Road in Newtownards, Co. Down.

Gareth Gill (51) of Abbot’s Walk, Newtownards pleaded guilty to two charges under the Waste and Contaminated Land (Northern Ireland) Order 1997, for which he was fined £150 each and ordered to pay a £15 offender’s levy

On June 25, 2018, PSNI officers went to Gill’s yard, where they found a large amount of waste consisting of scrap wood, pallets, carpet and underlay.

Discussion with Northern Ireland Environment Agency (NIEA) officers confirmed the site...
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