Mitigating risk in a dry and variable climate

Background

In 2014 I travelled on a Nuffield scholarship sponsored by the GRDC to learn about risk mitigation in dry and variable climates. I travelled through North and South America, Africa and Europe to try to find ways to improve our business in Kalannie and contribute to our agriculture sector in Western Australia.

I returned home to the family farm in 1993. The following nine years were very good. We increased inputs to drive production. Since then we’ve had a decrease in autumn rainfall and an increase in seasonal variability.

Our average yields dropped by about 300kg/ha despite improving genetics and technology.

Figure 1 highlights vividly what has happened to the climate of the south west land division.

Bar graph Figure 1: 100 years of water inflows to Perth dams.

Figure 1: 100 years of water inflows to Perth dams.

Our variability is summed up with 2002, a year where we didn’t get our seed back and 2008 when we achieved a 43 per cent return on capital. Problems arise when multiple poor years occur in a row. The best break crop can be a drought. If losses are managed and a good rainfall season follows, a highly productive low input year is achieved.

In 2007 and 2010, with modest yields of 0.73 and 0.95t/ha, a three per cent return on capital was made. This was brought about by containing costs and good grain prices. We are conservative with early grain sales, we sell when we are confident there is some seasonal certainty, and hold grain for a period of time if harvest prices are poor.

Figure 2 shows our historic wheat yield and five-year rolling average yield over time. The rolling average varies from 1.94t/ha after 2001 down to 1.24t/ha after 2006.

Figure 2: Historic wheat yield and five-year rolling average yield.

Recent business focus

We have steadily grown our business to gain the efficiencies of scale. We have tried to do this by purchasing the more forgiving soil types, such as the light to medium soil types that require less moisture to establish a crop. This has been increasingly important by the decline in autumn or sowing rainfall.

We now crop 12,200ha of wheat, barley and canola, with two sets of plant. We also have 3000ha that has traditionally been pasture, but now we are moving towards more of a chemical fallow. Fallow is often followed by canola to give the double break and improve canola reliability. This then leads into a low-cost cereal phase.

We stopped growing legumes due to poor returns five years ago. The reasons were dry seasons, poor weed control in comparison to canola and legume’s susceptibility to soil constraints such as salinity. We have found canola to be the superior break crop on our farm.

Banks, fences, trees including oil Mallee plantations and rock piles are being removed to further improve machinery efficiency and importantly weed hygiene. Tree removal at first was a hard thing to do as I pushed the planting of many of these in the wetter period of the 1990s.

Plantings on the contour no longer fits our up and back system. Trees are still planted, but in blocks on poor performing soil. If the seasons continue to become less favourable to cropping, taking poor performing soil types such as high heavy clay country out of production will become important.

Livestock and the Eastern Wheatbelt

Livestock and their fit became topical when our Premier Colin Barnett suggested them as a solution to the issues that some Eastern Wheatbelt areas are currently facing.

In our situation we have decided the negatives of livestock production currently outweigh the positives and we are in the process of selling our Merino sheep. They are compromising our cropping system.

The positives to running sheep are that they add income diversity and are another tool in integrated weed management.

The negatives are numerous. As mentioned above they reduce cover and degrade soil structure on our soils. Dry seeding is our main driver of improved machinery utilisation and water use efficiency. Dry seeding, starting by the calendar and not soil moisture conditions, needs soft friable soil with cover. Pre-emergent herbicides aren’t as effective with a cloddy seed bed.

Our increase in paddock size driving machinery utilisation doesn’t fit livestock’s need for smaller paddock size for effective grazing management. Stocking rate is a key profit driver with livestock. A high stocking rate isn’t compatible with our fragile soils.

With the importance of scale to cropping and with management becoming our biggest constraint, livestock consumes this valuable resource keeping it from where it gets the best return.

With farming becoming an all-year-round profession, removing livestock improves lifestyle and decreases profanities.

For livestock to work in our environment three things are needed:

Trading rather than breeding. The high rainfall areas breed and the Eastern Wheatbelt fattens. This would make it easier to react to seasonal conditions. It removes the emotional attachment and investment in breeding ewes that makes it difficult to de-stock when necessary.
Confined feeding. Provided the option of removing livestock when seasonal conditions dictate. For example, salt bush plantings on poor performing saline zones.
Grazing cereals. Currently in low production zones the yield reduction outweighs the grazing value.

Oklahoma State in the United States has a farming system that revolves around trading cattle and grazing cereals to effectively manage their risk.

Economies of scale

Economies of scale coupled with good management is the wheatbelt’s key profit driver. With declining terms of trade it allows our farming businesses to continue to remain profitable.

The biggest constraint has become management in our and other farming businesses. As an industry, initiatives such as GRDC Farm Business Updates are so important in up-skilling decision makers.

Appreciation in land values has meant growers have to intensify production to compete. Intensification or increasing inputs means chasing the high risk part of profit with the law of diminishing returns. This in turn adds more risk to farming businesses when things go wrong, which invariably they do in agriculture.

Our big advantage in the Eastern Wheatbelt is low land values by Australian and international standards. We have limited external influences such as foreign investment. This means we do not have to intensify production to compete. We can chase the first, low risk part of profit on the law of diminishing returns. This is then coupled to scale.

Example 1: Our farm valued at $750/ha for a five-year wheat average of 1.75t/ha. $428 of land value per tonne of wheat produced.

Example 2: Moora land valued at $4000/ha for a five-year average of 3.2t/ha. $1250 of land value per tonne of wheat produced.

Fallow is an important way to reduce variability and it works with the right soil type and when land values are low in the Eastern Wheatbelt. Fallow is hard to justify when land prices are high.

As growers we can be our own worst enemy by paying too much for land and by not pricing risk into the value paid.

Scale is how we keep machinery costs under control. Even with more than $2,000,000 in machinery, our cost per hectare is low in our benchmarking figures and even more importantly machinery cost per dollar of income produced is $0.50 for our business.

For our and other businesses it’s important to work out when scale stops working for you. What is the tipping point? When does management becomes limiting and compromises the outcome?

Figure 3 shows the prices paid and total accumulated arable hectares of farm purchases since 1988. The purchase of ‘Greens’ in 1989 put our business under significant pressure with interest rates reaching 18 per cent, and three children at boarding school.

The purchase of ‘McPharlins’ occurred before the 2002 drought when seed was not harvested for the following season.

Figure 3: R. Nixon & Co land expansion and prices paid per acre.

Family, family, family. When does too much stop being a good thing?

One of the best ways to gain or maintain scale is sticking together as a family unit. I farm in partnership with my brothers Daniel and Matthew, our partners and our parents. The efficiencies gained from sticking together are huge, both economically and socially.

Travelling on a Nuffield Scholarship for 20 weeks was made a lot easier by having someone capable and trustworthy to cover me. Sometimes when you go away you are not as important as you like to think you are! In difficult times having someone to share decision making de-stresses the situation.

A good example on our farm would be the chaser bin. If we were to split the business and go from one chaser bin chasing two headers to two chaser bins it would cost us an extra $48,000 a year.

For example: 600 hours a year x $80/hour (depreciation, fuel, labour) = $48 000/year.

That amount of money a year over 10 years buys a family member a house in Perth. Yet it’s the small things that often contribute to families to going their separate ways. It’s not always possible with different personality types, but the gains of working together are large.

Genetic modification and the Eastern Wheatbelt

Genetically Modified (GM) technology could provide many solutions to our farming system – such as drought, salinity, pesticide tolerance and useful traits such as Omega 3 that could add value to consumers, and in turn value at the farm gate.

We have grown GM canola for the past two years. The problem is it increases costs and, in turn, increases risk. Canola has worked so well in our system because we can control costs by retaining seed, utilising cheap off-patent herbicides and a conservative nutrient application.

For GM to fit into our system we need: multiple GM traits, so that the reward outweighs the risks. Endpoint royalty rather than up front seed and technology fees, which will enable risk to be shared with seed and technology providers. Reduced regulations to lower the cost of bringing new traits to commercialisation.

With the majority of breeding going into GM hybrids the yield gap between GMs and convential triazine-tolerant lines will continue to widen. By using low seeding rates of 1kg/ha and by following fallow the risk is reduced. With expensive seed, the small seed size of Pioneer® 43Y23 (RR) is an advantage over the large seed size of Hyola® 404RR in lowering seeding rates.

Crop insurance

Multi-peril crop insurance has been pushed by industry as a solution to manage our seasonal variability.

This production insurance is central to US agriculture. It’s the corner stone of the US Farm Bill and their subsidies. In Australia, this premium comes at a significant cost to growers.

Does this premium reduce risk over time or does it becomes another cost that increase risk?

The double break

When travelling on my Nuffield Scholarship last year I visited Agriculture and Agri-Food Canada in Lethbridge, Alberta. Here they had a rotation trial that included seven years of continuous canola. After seven years, the rotation had held together and was only yielding 20 per cent less than their ideal rotation of canola following field peas.

On our farm we’ve had a lot of success growing canola after pasture or fallow over the past 10 or so years. This gives us two years of 100 per cent weed and disease control. The double break then leads into an extended low cost cereal phase. The double break has been particularly valuable in cleaning up purchased land with large weed burdens; to reset the system.

Our canola yields have proved to be more reliable, averaging 60 per cent of our wheat yields. Canola makes up 20 per cent of our cropping program. Costs are similar to growing wheat, except harvest costs that are higher due to slower harvesting speeds.

This year for the first time we’re trialling canola on canola; a stacked rotation (Figure 4).

It’s a paddock that was in canola last year. This year we split the paddock in half and put half back into canola, the other half into wheat. Next year the whole paddock will go into wheat. We will then be able to compare the more normal rotation of canola/wheat/wheat (CWW) versus the double break of CCW. We will be able to measure yield, weed numbers and disease such as rhizoctonia and nematodes. Hopefully we can then quantify the rotation with some numbers!

The idea with canola on canola is to grow a conventional triazine-tolerant line first, followed by a GM RoundupReady® canola. By using atrazine and propyzamide first then glyphosate and trifluralin in the second year, no herbicide group is used in the crop twice in two years. This is great for resistance management. The GM canola is grown second so that there is no risk of contamination and to utilise the GM varieties’ superior blackleg resistance.

We’ve found the double break valuable on our farm. Canola on canola is just another way to achieve it. I acknowledge that in areas further west where sclerotinia is a problem, this may not be viable.

Figure 4: On the left is wheat after canola, while on the right is canola after canola.

Ameliorating soil constraints

One positive of increasing inputs in the 1990s was the high application of phosphorous rates. This has resulted in a significant phosphorous bank that we can now utilise. To aid this we need to fix soil pH levels to make it more available. To redirect the dollar spent from phosphorous into lime, and in turn get other benefits such as increasing yield and herbicide efficiency.

With the expensive freight cost of getting lime to the Eastern Wheatbelt we have been able to find an alternative solution leading to significant cost savings to our business.

In our areas of low pH we are spreading what was once a poor performing morrel soil type with a 40 to 50 per cent neutralising value (NV). It is a calcium (14.5 per cent) and magnesium (4.5 per cent) carbonate (Figure 5). Our on farm lime source is half the NV of coastal lime sand so we double the rate to 4t/ha.

With the decrease in autumn rainfall, the lighter soil types are playing a bigger role in generating profit, as they require less moisture to germinate seed. Removing constraints such as acidity is crucial to improve their productivity.

Figure 5: screening our on farm lime source ready for application in 2016.

Conclusion

Under the current pattern of seasonal conditions I believe most low rainfall farming businesses can remain profitable going forward. In many ways, on the back of low land vales the area can adapt more readily than the medium rainfall zone.

Don’t wait for the world to struggle to feed nine billion people by 2050. High prices will cure high prices for a long time to come.

Our businesses need to drive our efficiencies further so that we continue to be the most efficient low cost producers in the world. We need to get the whole system right. At the end of the day farms are just businesses.

When a farm is run as a lifestyle it makes a very poor business. When a farm is run as a business it makes a very good lifestyle.

Contact details

Bob Nixon

R. Nixon & Co

0429 662 150

bobnixon@gmail.com

@bobnixon11