High wool prices provide unexpected bonus
WA’s farm businesses experienced a rollercoaster ride in 2017, with summer rainfall three times the 10-year average, followed by one of the driest openings to the season in recent memory.
That’s one of the key findings of the 2017-18 Planfarm Bankwest Benchmarks, WA’s leading annual report into the financial and production performance of broadacre farm businesses.
The report shows that favourable spring conditions allowed those businesses with crops that had not been too severely damaged early in the growing season to benefit with close to average production, and in some cases, outstanding production levels.
Bankwest’s new State Manager WA, Rural and Regional Banking, Greg O’Brien, commenting on his first Planfarm Bankwest Benchmarks, said the report showed once again the degree to which the state’s farmers can often be at the mercy of the climate.
“The 2017 season was generally a positive year, marked by some very challenging farming conditions. After the very dry start to the season with some areas receiving less than 10mm in total during April, May and June, good rainfall in the spring months allowed many businesses, especially in the southern regions, to achieve better than average yields.
“However, elsewhere, particularly in parts of the Central and Northern Wheatbelt, low rainfall in the winter months significantly impacted yield and returns,” he said.
Planfarm’s Managing Director, Graeme McConnell backed Mr O’Brien’s sentiments and said the wide range of financial results for the year 2017 was reflected in the benchmarks.
“Very dry autumn and early winter, followed by reasonable spring rain resulted in a big difference in profitability across the regions. Those who got crop up early in general produced some outstanding yields. For many in the north, the damage was done early and although crops benefited greatly from the spring rainfall they were well below average and losses were incurred,” said Mr McConnell.
On a State-wide scale the report concluded grain yields in 2017 were all above the 10-year average for wheat, barley and lupins, while the canola yield was slightly below its 10-year average, following strong performance in 2016.
The report, produced from analysis of data from 520 farm businesses across WA’s broadacre farming region1, shows the state’s sheep farmers had a positive year with rising wool prices driving increased farm revenue, with sheep and wool making up a 6-year high of 19.9% of farming income.
“Both sheep and wool prices rose to their highest levels in recent memory so it’s logical that we’re seeing increased effort in the livestock enterprises with farm businesses allocating a 5-year high of 29.3% of their land to sheep and wool in the year to February 2018.
“However, current social and political influences, especially in relation to the live export market, have the potential to disrupt sheep enterprise profitability in the short to medium term,” said Mr McConnell.
The report examines farm performance over the short and long term.
Bankwest’s chief economist Alan Langford said: “Farming has performed well over the past ten years, with rising land values adding to strong returns. Strong returns in the 10 years to February 2018 highlight the strength of WA’s broadacre farming industry.
“This new report shows an overall return of 5.2% in 2017, slightly lower than 5.5%2 over the ten years to February 2018,” he added.
The report shows farm equity remained stable in 2017 at 79.4% (compared with the ten-year average of 78.6%), as higher land values in WA’s broadacre regions offset greater debt levels. Greater volatility in the 2017 production year was illustrated by the largest difference in return on capital between the top 25% and bottom 25% of farm businesses in 10 years, of 12.2% and -3.6% respectively.
Mr O’Brien said he hoped the WA agricultural industry would find the report useful.
“All businesses need to invest in technology, talent and economic insights - critical enablers in today’s uncertain economic times. I hope the WA agricultural sector will find this report useful for identifying ways to improve returns, and seek to showcase the competitiveness of farming, when managed well, as a major investment class,” he added.
Notes:
1 The south-west land division of Western Australia, approximately bounded by a line from Kalbarri, Southern Cross and east Esperance.
2 Return on capital figure does not include changes in land values.
For more information contact:
Russell Yeo
Bankwest Senior Manager, Media & Communications
0421 637 028
russell.yeo@bankwest.com.au
Glen Foreman
Bankwest Senior Manager, Media & Communications
0412 421 002
glen.foreman@bankwest.com.au
About the 2017-18 Planfarm Bankwest Benchmarks
This report is published for the benefit of farmers and those involved in the WA agricultural industry. The 2017-2018 Planfarm Bankwest Benchmarks are derived from 520 businesses across Western Australia with data supplied by clients of Planfarm, Bankwest, BJW Agribusiness, AgAsset, and BusinessAg. We continue to be grateful to the contributors of data and all the farm businesses involved in the annual benchmarks for their support of this analysis. Farming is a unique business that is evolving rapidly with changes in farm business structures, technology, data, research, consumer demand and global competition. The Planfarm Bankwest Benchmarks has become a powerful tool for WA farmers and investors to better understand the business of farming and the key aspects driving performance over the short and long term.
Single year (2017) analysis - This aims to highlight the performance of the most recent production year. Farming businesses are ranked on operating profit/ha/mm of rainfall recorded in the growing season. This is used as a measure of how efficiently a farm business has used the rainfall they received during the growing season.
Multi-year analysis – This is a rolling 10-year data set that considers how businesses perform over several years. Due to the impact of seasonal variability being diluted through time, farming businesses are ranked simply on return on capital in this data set. The single year data should always be read in conjunction with the multiple year results, as these provide a better reflection of the longer term performance of businesses and management. The 10-year data highlights the incredibly strong track record of performance over a wide range of seasons.
About Bankwest
Bankwest provides personal and business banking solutions for more than 1.1 million retail and business customers across Australia. Bankwest customers enjoy access to an extensive network of stores and business centres, direct and third party distribution channels, agencies and electronic banking facilities, as well as 24-hour telephone and internet banking. Bankwest is a division of the Commonwealth Bank of Australia.
