abare.gov.au - Australian commodities – December quarter . volume 15 . number 4 2008

Farm financial performance
2008-09 – projections for broadacre and dairy farms

Peter Martin, Mark Chambers, Surya Dharma and Sarah Crooks

Broadacre farm income improves only slightly

The financial performance of Australian broadacre farms is projected to improve only marginally in 2008-09, adding slightly to the improvement in farm financial performance recorded in 2007-08.

Farm cash incomes are projected to improve mainly as a consequence of increased winter crop production in a number of areas with better seasonal conditions in 2008 compared with seasonal conditions in 2007 (maps 1 and 2). These include the northern Western Australian grain belt, northern New South Wales and parts of Queensland.

Early in 2008-09, historically high grain, oilseed and grain legume prices led to increases in winter crop plantings and raised hopes of a substantial increase in farm incomes. Unfortunately, dry conditions in spring resulted in low yields in southern Australia and rain through the harvest period resulted in substantial downgrading in grain quality and lower prices for many winter grain crops.

In regions dominated by broadacre livestock farms, farm cash incomes are projected to remain relatively similar to those recorded in 2007-08 with strong lamb, sheep and beef cattle prices, but incomes are expected to fall in areas more reliant on wool as a consequence of an expected reduction in wool prices.

Overall, cash costs are projected to increase in 2008-09, but cost increases are projected to be significantly smaller than increases recorded in 2007-08. This is because of reductions in interest rates and lower fuel prices combined with reduced feed grain and fodder expenditure on farms with livestock.

Nationally, average farm cash income for broadacre farms increased from $29 800 in 2006-07 to $64 400 in 2007-08 and is projected to reach $69 000 in 2008-09, below the average for the 10 years to 2007-08 of $75 000 (in real terms).

In 2006-07, average farm cash income for broadacre farms was the lowest recorded in more than 30 years. In 2007-08, farm cash income improved in northern Australia and in grain growing areas of Western Australia, South Australia and Victoria. This was on the back of increased winter and summer grain and livestock production because of better seasonal conditions combined with historically high grain prices and strong prices for sheep, lambs, beef cattle and wool. However, farm financial performance remained low in many other areas including almost all of New South Wales, central and eastern Tasmania and most pastoral areas of southern Australia. Farm financial performance was particularly poor in irrigation areas including the southern Murray-Darling Basin, where availability of irrigation water was low.

Dairy farm income remains historically high

The financial performance of Australian dairy farms is projected to fall slightly in 2008-09 because of lower milk prices, particularly milk for manufactured dairy products, and despite a small increase in milk production. Nevertheless, farm cash incomes for dairy farms are projected to remain relatively high in historical terms. In addition to lower milk receipts, farm cash costs are also projected to increase for dairy farms. However, increases are projected to be smaller than those of 2007-08 because of reductions in feed grain and fodder prices, lower interest rates and lower fuel prices. Despite this, overall expenditure by dairy farms on fodder is expected to remain historically high, particularly in Victoria, southern inland New South Wales and Tasmania because of continued dry conditions and low availability of irrigation water. Use of purchased grain and fodder is expected to be supported by a small increase in dairy cow numbers and attempts to increase milk production in many regions in response to relatively high milk prices.

Nationally, average farm cash income for dairy farms increased from $43 170 in 2006-07 to $138 000 in 2007-08 and is projected to fall to $117 000 in 2008-09 – well above the average for the 10 years to 2007-08 of $75 000 (in real terms ).

Major financial performance indicators

Farm cash income	= total cash receipts	– total cash costs
	total revenues received by the farm business during the financial year	payments made by the farm business for materials and services and for permanent and casual hired labour (excluding owner manager, partner and family labour)

Farm business profit	= farm cash income	+ changes in trading stock	– depreciation	– imputed labour costs

Broadacre and dairy farms

Broadacre and dairy farms account for almost 70 per cent of commercial-scale Australian farm businesses. They are also responsible for the management of more than 90 per cent of the total area of agricultural land in Australia, account for the majority of Australia’s family owned and operated farms, are located in all regions and form a vital part of rural communities and economies across the country.

Each year ABARE interviews the operators of around 1600 broadacre farm businesses in its annual Australian Agricultural and Grazing Industries Survey (AAGIS) and 300 dairy farm businesses in the Australian Dairy Industry Survey (ADIS), as part of its annual farm survey program. The AAGIS is targeted at commercial-scale broadacre farms; that is, farms which grow grains or oilseeds, or run sheep or beef cattle and which have an estimated value of agricultural output exceeding $40 000. The ADIS is targeted at commercial-scale milk producing farms.

Methodology

Data provided in this note have been collected via interviews and incorporate detailed farm financial accounting information. The 2008-09 projections are based on data collected via on-farm interviews and telephone interviews in the period 1 October to 9 December 2008. The estimates include crop and livestock production, receipts and expenditure up to the date of interview together with expected production, receipts and expenditure for the remainder of the 2008-09 financial year. Modifications have been made to expected receipts and expenditure for the remainder of 2008-09 where significant price change has occurred post interview.

State and regional financial performance of broadacre and dairy farms

Farm cash incomes projected for 2008-09 and how these incomes rank in historical terms varies markedly across states and regions (map 2).

In New South Wales, projected higher farm cash incomes for broadacre farms in 2008-09 are mainly in grain growing areas in north-western and central New South Wales and among livestock farms in the tablelands areas to the east, where livestock turn-off is projected to rise. Rainfall and flooding in late November – early December has caused damage to unharvested winter crops in northern New South Wales. This has resulted in loss of production and downgrading of grain quality, and, as a consequence, incomes for some farms in these areas will be adversely affected. Farm cash incomes are projected to be relatively low across much of southern New South Wales where dry seasonal conditions have continued, particularly in the irrigated areas of the southern Murray-Darling Basin.

Victorian cropping farm cash incomes are expected to decline in 2008-09 because of dry seasonal conditions. However, receipts from beef cattle, sheep and, particularly, lambs are expected to be largely maintained although wool receipts are projected to fall. This is projected to sustain farm cash incomes for livestock producers, partly through increased turn-off in the dry conditions of 2008 and partly because of increased lambing and calving percentages resulting from the better seasonal conditions in the second half of 2007. Farm cash incomes are projected to remain low in the irrigated areas of the Murray-Darling Basin.

Queensland cropping farm cash incomes increased in 2007-08 because of higher wheat production and, particularly, increased production of grain sorghum and summer crops. In 2008-09, cropping incomes are projected to be maintained, mainly through increased winter crop production. Receipts from summer crops are projected to fall, because of expected lower prices for feed grains, including grain sorghum, and reduced grain sorghum plantings. Beef cattle receipts are projected to be maintained in 2008-09, with a small increase in projected beef cattle turn-off after two years of growth in beef cattle numbers. On average, farm cash incomes for broadacre farms in Queensland are projected to rise to $78 000 a farm in 2008-09.

Western Australian broadacre farm cash incomes are projected to remain relatively high in 2008-09. This is because of increases to winter crop production, particularly in the northern and central wheat belt and despite substantial increases in farm cash costs. With relatively good incomes from grain and lower expected wool prices, many mixed enterprise farms with sheep are expected to withhold some wool from sale and increase their on-farm stocks of wool. Sheep numbers are projected to continue to be reduced as farmers further expand grain growing.

South Australian broadacre farm cash incomes are projected to fall as a result of both lower crop production and lower prices. Some of the fall in crop receipts is expected to be offset by increases in livestock receipts because of increased turn-off of sheep, lambs and beef cattle because of continued dry conditions.

Tasmanian broadacre farm cash incomes are projected to decline in 2008-09. This is largely because of continued dry seasonal conditions in the midlands and central highlands. Sheep farm production is projected to be lower in 2008-09 with many farms running smaller flocks as sheep numbers have fallen in the previous two years. The decline in flock sizes is expected to result in lower receipts for sheep and for wool in 2008-09. Beef cattle receipts are also expected to be lower with farms turning off fewer cattle although farms are expected to further reduce cattle numbers because of the dry conditions. The reduction in livestock numbers is projected to result in a substantial fall in the value of on-farm inventories and substantial farm business losses, for the third successive year.