Don’t let your profits dry outWe 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.
Moisture percentage mattersWe 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.
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.
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 thoughtsFingers 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
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