SFI: Certainly, a risk management opportunity, but probably not a long-term strategy...
The new SFI (Sustainable Farming Incentive) rules were released in January. Ahead of the spring planting season, it is now time for questions: should you massively apply to SFI? Should you consider this environment scheme as a short-term solution or a long-term strategy for your farm?
UK farmers are facing a challenging season. The current and immediate situation is thus not looking bright: Prices are low, production is at risk, costs of production remain elevated, cost of money has soared.
Even if all farms and lands are of course different, a quick calculation would conclude that, except for winter wheat and malting barley (if you manage to achieve malting specs) SFI schemes could provide a higher risk/margin ratio than growing spring crops.
The temptation is thus strong, and we hear that 10 up to 20% of the UK arable land could be under SFI schemes this season. A huge area indeed, a massive public cost for sure, a big shock for our domestic grain production capacity and food sovereignty.
Using SFI to mitigate lower profitability prospects is probably a proper risk management opportunity for UK farmers this season. But considering these schemes will remain in place on the long-term is probably more questionable. To make a long story short, UK agri-policies and financing will probably change fast in the coming years. So, let’s not bet on it, let’s not take long-term decision that we could then regret when market conditions will be more favorable. At the end of the day, farmers are there to produce food, not only to plant trees and edges! And the market will have to pay for it, not the states.
It is clearly a transitional period for UK farming. We had two good years in 2022 and 2023. This coming season will probably be more difficult, but we should value our business on a 5 to 10 year-length. Our market are cyclic, better times will be back soon.
This raises the question of prices. Wheat prices continued to fall in 2024. They are currently trading at the season’s lows again. Here, it is difficult to be very optimistic. However, we will follow some key and potentially positive price influences
- Brazil: the USDA might well be over-estimating both soya and corn production by 10 to 20MT each. Our boots in the ground contacts continue to report lower corn area and soya yields. We will have a much better view as soon as the end of February!
- Black Sea supplies vs EU exports: for the first time since August, some French wheat was sold to Egypt and Algeria this week. We need strong EU exports to support MATIF (and thus LIFFE) prices again. The switch from Russia to EU demand is slowly but surely taking place. The war could also have a geopolitical positive impact if the Kerch Bridge was to be destroyed.
Our network in Brazil tells us a very different story than the USDA’s. Any rebound will be a selling opportunity.
sebastien.mallet@oda-agri.com
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