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