Long-term returns remain strong for WA

The financial resilience of WA farmers, established over previous better seasons, helped them withstand the "disappointment" of lower yields and higher production costs - particularly for fertiliser - last season, the Benchmarks, released last Thursday, indicated.

"Despite the disappointment of 2019, the long-term performance of broadacre agriculture in Western Australia remains strong," said Planfarm consultant Graeme McConnell, who with consultants Tyson Fry and Carter Johnson, explained Benchmark details to a webinar of 70 people this year instead of the usual breakfast or afternoon corporate function.

"Over the past 10 years the average broadacre farm business has generated a 5.6 per cent return on capital per annum, while the top 25pc of businesses have achieved a 9.8pc return," Mr McConnell said.

"Given these returns do not include land value growth, they remain highly competitive when compared to other investment classes.

"The long-term returns are very encouraging for the sector and show the sustainability of broadacre farming even in the current economic climate."

The Planfarm Benchmarks provide a snapshot of financial and production performance of broadacre farming based on data derived from 460 farm businesses in the Mid West, Central Wheatbelt and Great Southern regions, with data supplied from BJW Agribusiness, AGAsset and Business Ag clients.

"The Benchmarks are an important tool for planning for the future, showcasing solid investment returns and navigating the current climate of rapid change by use of new technology and improving management," Mr McConnell said.

For many farm businesses, limited summer rainfall, a slow start to the growing season and a hot and dry September, made for a challenging 2019, he said.

"Below-average growing season rainfall was a common theme for many, with crop yields suffering as a result,'' Mr McConnell said.

"Had it not been for strong livestock and grain prices, the result may have been considerably worse."

While the average farm achieved below 10-year-average yields for wheat, barley, canola and lupins last season, the Benchmarks showed the top 25pc of farms still managed better than average yields for the volume crops of wheat, barley and canola.

Driven by those below-average grain yields, lower farm income and higher operating costs, the average farm business generated an operating profit of $96 per hectare and a -1.3pc return on capital last season, according to the Benchmarks.

But the top 25pc generated an average operating profit of $268/ha and a 5.1pc return on capital - and they were not necessarily located in higher rainfall areas, Mr McConnell pointed out.

In terms of water use efficiency, expressed as kilograms per hectare grown per millimetre of rainfall received, the top 25pc were well ahead at 15kg last season, while the average farm matched the 10-year average of 11.6kg.

They also spent more on inputs, the Benchmarks showed, with the top 25pc having operating costs of just over $500/ha compared to the average of just under $400/ha.

Wages of farm workers and repair costs to equipment remained relatively low at about $25/ha and $35/ha respectively last season on average, while chemical input costs had plateaued at just under $60/ha.

But fertiliser costs jumped from about $65/ha in the 2017-18 season to about $95/ha last season.

Mr McConnell said part of the higher fertiliser expenditure identified by the Benchmarks last season was to replace nutrients drawn from soils during 2018-19 and the second biggest grains harvest on record.

He said while the average equity in farm business declined from 85.2pc a year earlier, to 80.3pc last season, equity gains made during that big 2018-19 season helped "insulate" many businesses last season.

Half of the businesses maintained an equity percentage above 80pc, while 13pc operated at a 100pc equity level, the Benchmarks showed.

"We saw the recent trend of increasing levels of farm debt continued in 2019, driven by farmer appetite to purchase land," Mr McConnell said.

"This was fuelled by strong long-term returns, low interest rates and increased appetite for risk, in turn contributing to continued growth in land values," he said.

The average farm size in the 2019-20 Benchmarks was 4642ha with crop production accounting for 72pc of effective farm area use.

At 35pc of total area, wheat remained the dominant crop for the average broadacre farm.

A recent trend of increased barley planting had continued last season - with barley accounting for 18pc of total area planted.

But Mr McConnell pointed out this was not expected to continue, given China's ban on barley exports from CBH Group and the punitive tariff imposed on other Australian barley exports recently.

The average area sown with canola slipped again last season to 8pc of total area.

"When examining the average gross income generated by wheat, barley and canola in 2019, we found that wheat generated a slightly higher gross income ($566/ha), compared to barley ($552/ha) and canola ($523/ha),'' Mr McConnell said.

"This was despite the yield advantage of barley and price premiums on offer for canola.

"The lack of autumn rainfall also meant pasture establishment was slow and for many producers, hand feeding continued into August.

"This, combined with a dry summer, meant water availability remained an issue throughout the season, with some producers reducing their flock size as a result, but the average flock size declined by less than 2pc."

Mr McConnell said strong demand from processors and east coast restockers supported sheep prices, with the average sales price rising by $12 per head to $133.

He said the ongoing strength of sheep and wool prices saw the total return generated by sheep production rise by 4.5pc last season to $176 per head.

But he pointed out while wool prices had slipped part way through last season, they had then fallen sharply since the period covered by the latest Benchmarks which would affect the profitability of sheep enterprises in the current season.