Local farm business forums to have global focus
Author: Peta MacDougall | Date: 11 Jan 2018
Leading independent Australian economist Stephen Koukoulas has advised Western Australian grain growers to make contingency plans for fluctuations in key global economic indicators during 2018.
“While the outlook is positive, with the global economy set to record one of its strongest years since the global financial crisis (GFC), risks abound with interest rate rises in the US, Chinese debt management and ongoing weak wages growth and inflation,” he said.
Mr Koukoulas, who operates Market Economics in Canberra, will be in Perth next month to address grain growers at the Grains Research and Development Corporation (GRDC) series of Farm Business Update events.
These popular forums are scheduled for Cunderdin on February 5, Kojonup on February 6 and Yuna on February 8 and will have a focus on world economic and agricultural commodity trends, succession planning, managing risk and developing emotional and mental fortitude.
Mr Koukoulas said his message to growers attending the Farm Business Update events will be to assess the good news in the Australian economy and favourable export outlook, but also consider ‘worst case’ risks to their operation and develop strategies to help guard against the impact of these factors.
“This is a key part of running a profitable farm business and helps to manage risks, to the extent that is possible,” he said.
Mr Koukoulas said it was positive for Australian farmers that the global economy was gaining in strength and the Australian dollar was more competitive at the 75 cent (US) level.
“This means demand for Australian agricultural exports is likely to remain strong in 2018, with the more competitive level for the dollar helping to cushion the impact of fluctuations in prices,” he said.
“Moderating the outlook, though, is that rural commodity prices are likely to continue to be volatile given big changes in global output.
“This is being driven, in part, by productivity gains leading to production of more grain per hectare in most regions across the globe.
“It is very, very difficult to plan for such unexpected spikes in ‘new’ grain supply and output other than to watch price trends, which quickly capture the impact of both supply and demand shifts.
“My advice to growers is to ‘stress test’ your business as a way to manage the issue.
“This is not to say prepare for the worst, but to be alert to how your business will be impacted in the event of an unexpected negative event.”
To achieve this, Mr Koukoulas recommended growers map out expected annual grain output, based on seasonal and crop yield forecasts.
He said this, plus taking account of interest rates, grain prices and the Australian dollar was part of thorough scenario planning for changes in each and all of these economic drivers.
“For example, my expectation is that interest rates will not move more than 1 per cent – if at all – during 2018 and there are options to lock in good rates for term borrowings that can extend over several years to reduce risk,” he said.
“This environment is very supportive to businesses that have sound management and strategic plans in place and it might provide opportunities for land expansion or necessary capital purchases.
“My advice is to always evaluate your risks and base your planning and management on as much global intelligence as you can.”
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