Russian wheat threat calls for cost cuts
The financial returns from WA broadacre farming are “one of the best-kept secrets out there” but cropping operating costs will have to come down to compete with Russian producers, according to Planfarm managing director Graeme McConnell.
Mr McConnell last week released the 2017 Planfarm Bankwest benchmarks that surveyed the financial performance of more than 500 WA broadacre farms.
The Planfarm survey compared the return on capital farms received from production after allowing for wages for management, machinery depreciation and the current land value.
Mr McConnell said 2017 was a tough year in farming with a wet summer followed by a dry autumn, but few people made a loss as spring gave many enough rain and no heat stress.
The north-east Wheatbelt did not get the rain it needed, and for the first time in a decade, its farms produced the worst financial returns. Farms inland from Mullewa yielded an average return of minus 3.5 per cent and the region inland from Wubin yielded minus 6.3 per cent.
The same areas are the long-term financial champions of the Wheatbelt with average returns of 10.9 per cent over the past 10 years, more than double anywhere else.
Mr McConnell said growth in land value had typically increased by 5-9 per cent a year, depending on the area, for the past 40 years.
He said when the increased value of the land was added to the return from production, the return for investment in agriculture was surprisingly good.
“It’s probably one of the best-kept secrets out there,” he said.
Sheep and wool earned the highest share of farm income for seven years, 19.9 per cent, on the back of rising wool prices.
He said sheep would continue to justify their place on the farm, particularly with the lack of economically effective legumes.
Mr McConnell said he expected farm sizes to continue to increase.
“The challenge for those businesses ... is working out how to change from being a machinery and livestock manager to being a people manager,” he said.
“If they get that part right, there aren’t too many impediments to scale.”
Mr McConnell said farms in the bottom 25 per cent of returns often had had a tough run of seasons.
“Those will correct if they are good managers,” he said.
He said other lower quartile performers commonly suffered from too much debt, poor management of plant, undercapitalisation or succession and control issues.
Mr McConnell said to counter the potential threat from Russia, WA farmers needed to reduce their operating costs to 55 to 60 per cent of farm income from the present level of about 70 per cent.
He said $22.5/ha lower operating costs was the main difference between top 25 per cent farms that earned a 10.6 per cent return on capital over the past decade compared to the average of 5.5 per cent.
“It’s not going to be straight-forward,” he said.
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