Ballarat accountants for farm business planning

General News: 15/06/2017

Although the 2016 harvest broke yield records, prices were not as desirable.

The coarse grain stocks globally are full, on a positive note it is rumoured that the Chinese stocks have been spoiled due to the wetter than expected conditions. Therefore, they will be looking to reenter the market in coming months to sure up their human consumption supplies again.

Sow… Here’s a summary on where the prices are predicted to go:
  • Cereal-prices expected to remain low
  • Canola- mid range, possibility of going lower (Large areas planted again this season as this is where the money is currently)
  • Pulses- large American plantings, expectation of prices to drop

Ballarat and district Farm accountants have the strategies to help

With the above in mind here are some key points to consider in terms of what we as producers can take control of:

Low-Price Year Strategies:

  1. Sales Timing Management:
    Avoid moving with the volatility; don’t be a forced seller.
    Don’t sell what you don’t have.
    Know what you’re target price is:
    Clarify and know what the cost of growing the crop is per hectare, define a level % level of return appropriate for your business, put these together to determine your businesses target price. Stick to it!
    Understand your cashflow position early- when will you need money; be ahead and communicate with your financers- they’ll appreciate it!
  2. Contract Execution:
    Market access- are you trying to get the price spikes @ the boats? Is your grain stored at appropriate locations for this and is grain quality being maintained?
    Lowest grades should be matched to lowest discount categories.
  3. Relative Values:
    Understand the spread of grain prices between grades.
  4. Market Liquidity:
    Gauge the level of interest when looking to sell- How many buyers are actively available?
    What is the price range between the top and bottom bids.
  5. Carrying Grain:
    What are your storage options and what are the opportunistic costs.
    Remember that for grain storage to be viable the cost incurred must be able to be restated at the point of sale, plus a profit margin- are the prices going to increase by that amount in the short-mid-term.
    Consider hygiene risks. Do you have the required infrastructure and knowledge to maintain the quality?
  6. Price Options:
    Fixed Price- sell for cash.
    Floor- buy options (seek professional advice).
    Floating- Select a pool manager (Ensure your assets are protected and check their insurance policies).
So where should Australian producers be focusing their attention in the medium term?
  • Aim to grow the most grain possible per mm of rain- aiming to reach a yield ceiling.
  • Monitor and know your variable costs (breakeven price) – regularly revise your budgets. Don’t just do and forget!
  • Australia has two areas to increase their global competition, quality and traceability. Start looking at using electronic paddock diaries to help you do this.
  • Focus on what you can control, not what you can’t.
  • Seek professional advice in the areas your feel are your weakest links.

 

At Mulcahy and Co farm accountants we can help you to create or review your budgets. We enable you to use user-friendly programs specifically designed for agricultural purposes. Please do not hesitate to contact us at Mulcahy and Co Ballarat – we’d be more than happy to help!