Farming systemsthat manage risk in a changing climate

Peter McInerneyPrincipal 3D-Ag

Whole farm systems…

More than just your production system

= Physical, financial and human elements of the farm business AND how they interrelate

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People –

the skills and motivation they bring to management

The

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MANAGEMENT MATTERS …

Under pressure?

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The rollercoaster ride of recent seasons

?2006

2007

2008

Everyone knows a good

season follows a drought!

2009

Where’s your thinking this year

►Production ►Weather ►Finance ►Price volatility ►Management ►Other issues

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Risk can come from within –‘frictional losses’

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Team work has its benefits…

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Have clearly defined goals and objectives of all

involved in the business

Be able to step back and view your business as a whole

Develop a plan with agreed targets & timetable

If necessary get outside help to facilitate the process, clarify issues and ensure objectivity

Focus and direction

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DON’T be distracted by things you can’t control

& as a result …

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DO … Focus on things under your control

Robust whole farm system

◦Sound rotation / soil & water management High quality pastures, animals & grazing

management Complementary crops Rejuvenation phase / stubble retention Integrated weed management

◦Targeted program Inputs matched to anticipated production / quality Non price linked products

Accounts for 95% of the variance in profit!

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REALISE POTENTIAL

Management gap

Actual yield

Product

Yield

Available moisture

Minimise

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MANAGEMENT MATTERS …

Realistically assess potential

◦ Paddock by paddock and the farm as a whole

◦ Resources - management, funds, tools and technology

Consider the impacts of previous seasons on fertility, weed spectrum, profile moisture, management’s outlook - as it affects the coming season’s potential

Planning the farm program

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Appropriate crop and pasture sequences that:

1. optimise productive potential

2. minimise agronomic risk - balance

3. have a ‘moderate’ but appropriate cost structure “80% of farms” are currently not meeting these

objectives!

Target objectives…

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Back to basics…

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Soil health – structure, fertility, biology

◦ The role of: Rotation – diversity of species, root type Groundcover / stubble retention Compaction / grazing management IPM

A. Build productivity from the soil up

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Profitable quality crops and pastures

Complementary species – a mix of plant species / types, root systems to manage:

◦ disease and weed issues, reducing reliance on chemicals; and

◦ produce ‘free’ nitrogen

B. A balanced rotation

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Inputs targeted to expected yields- how low can you go?

Consider … What has been your standard rate?

What is the trend in levels over recent years?

Can you afford that new machinery / technology upgrade? Can you afford not to?

C. Appropriate cost structure

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Law of unintended consequences

Beware the

backfire - cost

cutting that

could cost $$ in

a good season.

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PROTECT

Target quality as well as yield – crop and varietal selection

Know your true cost of production

Develop a selling strategy

Review crop, weather & market signals regularly

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Minimum Crop Estimates (MCE)

MCE = The likely yield (i.e. how much product you have to sell)

in a worst case scenario.

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Potential Yield   MCE  

  t/ha     Moisture 1st Apr 1st Jun 1st Aug 1st Oct

    0 10% 20% 60%

Wheat 5.5 x 0 0.55 1.10 3.30

Canola 2.7  x 0 0.27 0.54 1.62

  0 0 10% 30%

Wheat 5.5 x 0 0 0.55 1.65

Canola 2.7   x 0 0 0.27 0.81

1. The tools/methods used to crunch the numbers…

2. How specific is the information used

- be wary of assumptions

3. Does ambition match ability

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When forecasting results - consider

Typical gross margin – Wheat

Income 2.5 t @ $180 $450

A. Total income $/ha $450

Variable costs◦ Seed and fertilizer $73◦ Herbicides $45◦ Operations $122

B. Total variable costs $/ha $240

Gross margin (A – B) $/ha $210

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in a continuous crop business

◦ Costs divided by ha of each enterprise or crop

in a mixed business - for simplicity

◦ treat crop and animal enterprises separately

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Allocation of variable costs

Graze

- additional animal product

- opportunity to manage pastures for higher quality and longevity Ability to - spell pastures

- manipulate weed populations

and Grain

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Dual purpose wheat

Narrow leaf lupins H1 wheat

Actual farmer result $300 $303

D I I (NSW) $257 $300

Gross margin

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What’s the difference?

1 2 3 4 5 6 7 8 9 100

20

40

60

80

100

120

140

160

Payment Average

Years

$/h

aCost of machinery ownership

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Wheat gross margin 2010per ha

Variable machinery costs only

Decile 3 $11 -$10

Decile 5 $236 $215

Decile 7 $461 $440

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Including cost of machinery ownership

Only variable costs included

Potential variability when assumptions are used - revenue … yield & price estimates 9 months in advance

- expenses … non specific costs of machinery

The generic GM … ‘one size does not fit all’

Gross margin limitations

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Apportioning the other costs of doing business – so called ‘fixed costs’

◦Financing

◦Capital

◦Business

◦Personalper ha / enterprise

Bringing the gross margin to a net margin …

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Gross margin toVariable machinery costs only

Decile 3 $9,396 -$8,474

Decile 5 $193,311 $175,441

Decile 7 $377,226 $359,356

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Including cost of machinery ownership

Net margin

-$141,375

$42,540

$226,455

The latest technology or herbicide is NO substitute for management!

Sustainable profit comes from a robust system!

Beware the ‘silver bullet’ sales pitch or generic GM…

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Reinforce your weakest link…

Recognise the skills lacking in your business and seek training or ‘employ’

the necessary help

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andtake care not to concentrate

your focus on fixing one aspect of the farm

business and end up

SWAPPING ONE RISK FOR ANOTHER!

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Consistent results - now and into the future

• Realistic plans• Sound simple system• Active focused management

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Doing the essentials well and doing them on time!

Get the whole picture!

52 Fitzmaurice Street, Wagga Wagga Ph: 69239000

www.3D-Ag.com.au