Weathering the weather

Harm van Rees, Brooke WhiteCropfacts P/L

Financial and production analysis for three Victorian farms

Nine consecutive yearswith decile 3 or less rainfall

to

decile 10 with the wettestharvest on record

(Nov to Jan rainfall - 330mm)

Discussion topics

• Comparison of three farms in the Mallee, southern

Mallee and Wimmera

• Importance of bio-physical constraints

• Impact of the Millennium drought

• Long term production and financials - profit

• Risk management

Bio-physical constraints

Multiple year droughtSingle year drought

0

100

200

300

400

500

600

700

800

Rain

fall

(m

m)

Birchip annual rainfall (1891 to 2010) (average = 365mm)

Annual rainfall

5 year running mean

Federation drought WWII droughtMillennium

drought

(i) Rainfall

• Mallee clay loam

• pH alkaline

• Subsoil high in EC, chloride and boron

• Rooting depth: 60 to 80cm

• Available soil water: 80mm

Southern Mallee

(ii) Soils

Mallee farm background

• No-Till operation since 2003 (sold all livestock)

• 100% crop – wheat, barley, canola, pulse crops

• All stubbles retained

• Precision seeding

• Liquid and solid fertiliser application at seeding

Southern Mallee farm background

• Change over to No-Till

• Precision seeding

• 70% - wheat and barley

• 30% - pasture / chemical fallow

• Occasionally a paddock of lentils

• 2000 ewes - self replacing flock

• Stocking rate - 3 DSE/ha

• Feedlot as containment area and forfinishing lambs

Wimmera farm background

• Mainly No-till

• Chickpeas, lentils, canola, wheat, and barley

• Export oaten hay

Farm production

• Nineteen years data

• Farm size

• Paddock rotation

• Production (yield and protein)

• Inputs such as fertilisers and herbicides

• Management practices

Farm financialsINCOME

• Crop and livestock

COSTS

• Inputs (chemicals, fertiliser, seed, sheep husbandry, rates, office, insurance)

• Machinery (depreciation, fuel, freight, repairs, contractors)

• Finance (land rent, machinery, interest)

• Labour (owner drawings, employees)

0

1000

2000

3000

4000

5000

Are

a (h

a)

Southern Mallee Farm - area (ha)

Historical production

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Yie

ld (

t/h

a)

Sth Mallee Farm Cereal yield

Cereal yield

Cereal 3yr ave

Yield and Rainfall

Income and Costs

0

50

100

150

200

250

300

350

400

450

Farm

inco

me

/exp

en

ses

($/h

a)

Southern Mallee Farm – Farm income and expenses ($/ha)

Farm income

Farm expenses

Southern Mallee Farm - expenses as % of total costs

0

10

20

30

40

50

Exp

en

ses

(% o

f to

tal c

ost

s)

Farm inputs Machinery

Labour Finance

Benchmarks: Inputs 35%; Machinery 35%; Labour 15%; Finance 15%

Livestock on the southern Mallee farm

-200

-100

0

100

200

300

400

cash

mar

gin

$/h

a

Sth Mallee Farm - cash margin for crop and sheep ($/ha)

crop

sheep

-200

-150

-100

-50

0

50

100

150

200

250

Farm

Pro

fit

/ Lo

ss (

$/h

a)

Southern Mallee Farm Profit

0

50

100

150

200

250

300

350

400

450

-200

-150

-100

-50

0

50

100

150

200

250

GSR

(m

m)

Farm

Pro

fit

/ Lo

ss (

$)

Sth Mallee Farm - Farm Profit vs Growing Season Rainfall

Farm profit ($/ha)

GSR

Decile 3-4

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

Cu

mu

lati

ve f

arm

ear

nin

gs (

$)

Cumulative profit for the Mallee, southern Mallee and Wimmerafarms

Mallee

Southern Mallee

Wimmera

Risk management• The three farms are well managed (financially

and agronomically)

• For crop production the Southern Mallee farm needs a decile 3 to 4 to break even; the Mallee and Wimmera farms a decile 2 (assuming average price)

• Livestock or another source of income, other than crops, is essential for the Southern Mallee farm

• 100% crop makes any enterprise vulnerable to a single frost or heat event; rain at harvest; poor price; crop disease etc.

Farm profit efficiency

Profit ($/ha) = 2 x (GSR + Price of wheat – 350)

-200

-100

0

100

200

300

400

500

200 300 400 500 600 700

EBIT

($

/ha)

Growing season rainfall plus on-farm wheat price

Farm profit (excl. tax and interest) in relation to rainfall and the price of wheat

Main messages

• Understand the bio-physical constraints of the enterprise

• Have a good grasp of the financial situation

• Consider the operators skill and capability

• Owner’s attitude towards risk

• Availability of labour

• Priorities for family and lifestyle