Preparation underpins farm business performance

AS POST-HARVEST planning and budgeting rolls along for 2018, agricultural industry experts reiterate that – with good preparation and management – broadacre farm businesses can deliver returns similar to other investment classes.
Preparation underpins farm business performance Preparation underpins farm business performance Preparation underpins farm business performance Preparation underpins farm business performance Preparation underpins farm business performance

The GRDC

That was a key message from Western Australian farm advisers and agronomists at the recent Grain Industry of Western Australia (GIWA) annual ‘Seeding Success’ forum in Perth.

Supported by GRDC investment, this event is designed to review crop production in the current season and identify and discuss key learnings for next year.

GIWA Crop Report editor and GRDC Western Regional Panel member Michael Lamond said the challenges for WA growers of dealing with out-of-season rainfall going into the 2017 cropping program, followed by extended dry spells across much of the state in winter and a wet spring in some areas, were unusual. 

But he told the GIWA forum it was best not to be reactive when looking ahead to 2018 and to ensure plans were in place to sow crops on time to optimise grain yields and quality.

“Market conditions going into the New Year appear positive for broadacre farm businesses, with potential for growers to benefit from strong canola and feed barley prices, record high wool prices, solid beef prices and anticipation of an improving global economy,” he said.

LESSONS LEARNED FROM 2017 GOING INTO 2018

At the GIWA forum, a panel of WA farm advisers outlined the strategies their most successful clients used in 2017. These included:

  • controlling summer weeds early for soil moisture conservation and to supress carry-over of pests and diseases on a ‘green bridge’;
  • using longer-season cereal varieties if opportunities arose (especially in frost-prone areas);
  • managing in-season inputs, especially nitrogen (N) and herbicides, based on regular reviews of season and commodity price outlooks and monitoring stored soil moisture;
  • managing potential in-crop herbicide damage where there was highly variable crop and weed germination by focusing treatment on the growth stage of the bulk of the crop in the paddock.

Mr Lamond said, when planning for the coming season, consider carefully the economics of crop rotation sequence, variety choice and protection thresholds and measures for the particular region.

He said current grain prices indicate canola would continue to be a profitable rotation option for many parts of the WA grainbelt in 2018, potentially along with feed barley and oaten hay.

GETTING MANAGEMENT SYSTEMS RIGHT

Successful WA farm business operators have a knack for making the right decisions at the right time – often under pressure – and developing risk management plans to provide resilience in the face of a production, market or weather shock.

That is the advice from Corporate Agriculture Australia (CAA) director Gordon Verrall, who completed a benchmarking study of WA farm businesses (using 2011-13 Farmanco Profit Series Data) as part of a national project with GRDC investment covering all grain production zones.

He said this study highlighted that the key common management factors driving enduring profitability of broadacre operations were:

  • a focus on optimising gross margins;
  • use of low-cost business models (including efficient machinery utilisation);
  • having good people and management skills (for labour efficiencies);
  • using risk management plans to build business resilience.

Crop yield was an important profit driver, but Mr Verrall said there also needs to be consideration of agronomic decisions, variable cost control and timeliness of operations – which is a key profit-driver but difficult to quantify.

He stressed that the farm business models that perform well are characterised by managers who: 

  • optimise machinery use per hectare;
  • achieve low labour costs per unit of turnover;
  • have cost-effective access to land;
  • strive for high equity levels and contained overhead costs;
  • seek staff with some background or training in agriculture;
  • attract more staff locally;
  • retain staff more readily;
  • adopt a team approach to management.

For a copy of this benchmarking report, contact Gordon Verrall, CAA, at: 08 9271 0111, gverrall@corpag.com.au

HOW WA FARM BUSINESSES STACK-UP

The 2016-17 Planfarm Bankwest Benchmarks farm business benchmarking study showed the top 25 per cent of WA farm business managers have been generating almost double the cash returns of the State’s average farm business during the past decade (varying widely between regions).

The report authors said this highlighted that, with good planning and management, there was potential to improve returns from broadacre operations across WA.

Based on records from 550 farm business clients of Planfarm Pty Ltd, Bankwest, Bedbrook Johnston Williams, Business Ag and Ag Asset, the benchmarks provide a reference for growers to compare their financial and production performance to others in their district, region and state. 

The full report can be found at HERE and some key findings that can help with business planning for 2018 include:

  • the top 25% of farm businesses produced a 10-year total farm return of 10.7% from production and land value appreciation;
  • the average 10-year total farm return was 6.6% and the lowest 25% of businesses had an average 3% return.

For the 2016-17 season:

  • average return on capital was 4.2%;
  • average farm equity was 79%;
  • average operating profit was $178 per hectare;
  • average farm size was 4454ha;
  • average wheat yield was 2.2 tonnes/ha.

(It is worth noting these benchmarks are based on analysis of 2016 cropping season results, which were influenced by widespread incidence and severity of frost in many areas and low grain prices).

MAKING USE OF BENCHMARKING ANALYSIS AND DATA

Most business benchmarks are ratios that can be used as reference points to help identify the main issues a business needs to focus on.

Sound farm business management can incorporate benchmark reviews as part of a cycle of planning, monitoring and assessing performance annually and across years.

That is the advice contained in GRDC’s Fact Sheet ‘How do you keep track of your farm business performance’, that can be found HERE

It outlines the importance of knowing liquidity status (or cash flow) and efficiency (or getting the best return on capital) to achieve long-term financial sustainability.

This Fact Sheet stresses the value of preparing gross margin analyses and budgets that compare relative profitability of enterprises. 

Tips for assessing the impacts of a good or bad year by considering the impact of a range of potential yields and prices on overall gross margins received from the cropping and livestock enterprises are contained in the GRDC Fact Sheets. These allow comparisons of ‘average’, ‘best case’, and ‘worst case’ outcomes.

FARM BUSINESS PLANNING RESOURCES 

Other comprehensive information about farm business planning, including gross margin budget preparation, measuring and monitoring performance indicators and calculating costs of production (COP) are available at the GRDC’s online ‘Farm management’ hub HERE.

EXPERT ADVICE ON-HAND AT GRDC FARM BUSINESS UPDATES

GRDC is holding its annual series of Farm Business Updates in WA during February to enhance grower and adviser understanding of current farm business issues and help with effective planning  and management.

These events are scheduled for Cunderdin on February 5, Kojonup on February 6 and Yuna on February 8 and will cover a range of topics, presented by expert speakers, including:

  • economic drivers impacting on farming businesses (Stephen Koukoulas, Market Economics managing director);
  • managing risk – potential role of multi-peril crop insurance (Farmanco);
  • farm generational transfer – structures and processes (Stephen Park, Pacer Legal);
  • making it work across generations – a family farm case study (Victorian grower Leo Delahunty);
  • developing emotional and mental fortitude (Dennis Hoiberg, Lessons Learnt Consulting).

Other speakers will present at individual events and for more information and to register click HERE

www.orm.com.au or contact ORM at: admin@orm.com.au

GRDC Research Codes: 

AES00006; RDP00013, ORM00017

Contact:

Michael Lamond, GRDC Western 

Regional Panel member

0408 056 662

mlamond@westnet.com.au

Graeme McConnell, Planfarm

08 9284 1044

graeme@planfarm.com.au

Gordon Verrall, Corporate 

Agriculture Australia

08 9271 0111

gverrall@corpag.com.au

Useful resources:

GRDC Farm Business Management information hub, including Fact Sheets, publications and webinars click HERE

GRDC Farm Business Updates: www.grdc.com.au/events or www.orm.com.au