Farmland Drought – Strategy

The below map sums up what was a very challenging year for most of our tenants.

Famrland Rainfall Decile Ranges

The dry year came on the back of 2017 which was also a very dry year. In fact, we have to go back to September 2016 to find the last decent rainfall event that spread across the entire Eastern agriculture area of Australia. This is not abnormal as droughts have always been part of the Australian environment. Farmers know this and typically plan and prepare for these dry events.

The other thing to keep in mind is that, although the season was very dry, certain areas did receive timely rains allowing them to produce some crop. Our properties, Inglebrae West and Glenowen performed particularly well given the tough year.

Farmland Prices of Grains

One of the interesting consequences of drought, is the way lower supply forces up the price of grain. At the beginning of the year, wheat was trading at around $280 a tonne. As the year progressed, and it became evident that the wheat crop would only be small, traders quickly pushed the price of grain up to $450 a tonne. The benefit of this is that farmers can still be profitable even though their production is much smaller. Typically, it costs a farmer $500 a hectare to produce a crop. At $250 a tonne, a farmer needs two tonnes a hectare to break even. At $450 a tonne, the farmer only needs to produce 1.2 tonnes to the hectare to break even. Also, because there is less product to move, costs are reduced. So, it is easy to see, some farmers where able to meet budget despite the dry times. However, for some farmers, the loss of production due to the drought, was not covered by the jump in grain prices. Their production was just too low.

Lifestock Prices

Livestock enterprises also had a challenging year. Many farmers store hay and grain on farm to feed their livestock when drought hits. However, given the prolonged nature of this dry period, even the most conservative of operators struggled this year. Many farmers were forced to purchase grain or hay at very high prices. Unfortunately, this meant their costs were much higher than normal. Hay was having to be transported very long distances from South Australia and even Western Australia. This added to the cost of the fodder.

Photo of a recent dust storm about to hit a town in Western NSW

There is an old saying in Australia when a drought begins, “Sell and regret, but sell”. What this means is you should always try and sell your livestock at the beginning of a drought because  you then don’t have the expense and stress of feeding your stock waiting for it to rain again. It’s easier said than done of course. An interesting thing occurred during this drought. Normally livestock prices drop dramatically during a drought as farmers rush to sell their stock early so they don’t have to feed them. It was different during 2018. Livestock prices hardly moved at all, and in some instances, lifted. This is a reflection of two things. Firstly, lamb, mutton and beef demand remain strong. And secondly, the wool market remained extremely strong meaning most sheep enterprises remained extremely profitable.

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