Management needs to reflect new era
Today’s grain farms require very different business structures to the farms of 20 years ago, agricultural consultant Ed Hunt says. Mr Hunt told recent GRDC Grains Research Updates in the southern region that changed factors affecting management and risk profiles included increased cropped area per business, critical shifts in farm income to cost ratios, and a move from mixed-farming systems to a higher percentage of intensive cropping.
“Land values in grain-growing areas have typically doubled, debt levels and total interest paid per grain-farming business are at record levels and machinery costs per business have also typically doubled,” he said.
“Climate variability in-season and between seasons and trends over time have also changed.”
He said that when combined, these factors created a whole new era for grain businesses.
Mr Hunt runs Ed Hunt Ag Consultancy on the Eyre Peninsula. In the past two years he has worked with focus groups to evaluate the profitability and risks of farm businesses managing different farming systems.
The work was done with Mallee Sustainable Farming through the GRDC-funded ‘Low Rainfall Profit and Risk’ project.
The focus groups were held at Cummins, Waikerie and Karoonda in South Australia, Ouyen in Victoria, and West Wyalong in New South Wales. Each group developed a model farm representing their region.
Multiple scenarios, such as altered crop intensity, plus and minus livestock, business expansion and machinery investment, were applied to each model, and cash flow and end cash balance were calculated for a range of seasonal deciles (one, three, five, seven and nine).
Mr Hunt said a critical message from the project was that analysing business profitability in only an average season was “almost useless”.
For example, one of the model farms had a much greater capacity for profit in better seasons when set up for continuous cropping, but was a much riskier business than the comparative mixed farm in poor seasons.
“While a current move to high-input farming systems may provide for increased profitability in above-average years, more attention needs to be given to the business’s ability to cope with successive poor years,” Mr Hunt said.
“Planning and risk buffers must be extended to cater for multiple years.
“In the low-rainfall Mallee regions of SA and Victoria, lower cropping intensity, greater use of legume crops and pastures, livestock, off-farm income and prudent machinery expenditure are some of the key strategies businesses are using to remain profitable and to effectively manage risk,” he said.
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‘Farming systems managing profitability and risk in a grain business’ – GRDC Grains Research Update paper
GRDC Project Code DAS00119