Key messages
Lower than expected yields caused by frost and dry conditions, along with rain-related quality downgrades, may all impact cash flow heading into 2025
If you’re likely to need access to working capital heading into next season, it’s recommended to contact your bank manager or financier as early as possible
Prepare by gathering your financial data and be prepared with a budget
- There's support available - speak to your accountant or business advisor for advice, sooner rather than later
Many farmers across the region have been hit by lower-than-expected yields caused by frost and dry conditions, while rain at harvest may have also led to quality downgrades. Given the high costs of inputs applied through the growing season, this may cause a cash-negative situation for some farmers.
If this is the case for you, what are the options?
Contributed by Alister Murphy, SproutAg
Working capital is the lifeblood of any farming business. Access to inexpensive and flexible capital allows the business to plan ahead and provides confidence knowing that expenses will be covered throughout the year, until the next harvest or livestock sales can occur.
Being prepared with updated budgets for 2025 is key. Recognising the likelihood of possible cash shortfalls in advance gives you time to engage with your financier. Being on the front foot is especially important, as banks can become quickly overwhelmed when their customers are facing similar challenges at the same time. We also commonly see examples of banks taking several months to approve increases to a customer’s working capital limits; this can cause stress and increase reliance on expensive seasonal accounts with suppliers.
If you’ve recently had a change of bank manager, who perhaps doesn’t quite understand your business as well, it’s good to get a second opinion. Consider engaging with a professional who will take the time to understand your business and help prepare a detailed proposal to the bank.
Top tips for 2025:
It will also be helpful to look closely at areas where costs can be reduced, or alternative income streams.
Consider things like enterprise mix (livestock, contracting, hay) but be careful to understand the likely costs and returns before making major changes to your enterprise mix. Also look at cost savings that won’t affect potential productivity (i.e. variable rate application of inputs) and thoroughly review your fixed costs. Understanding variety performance, for example the different hybrid canolas and how they perform, can also make a difference. Also consider if longer term changes need to be made to the business enterprise mix or operating structure.
At our In-season Update in late August, we talked with Ben Percy about how farm margins overall are being squeezed, even though farmers are producing more than ever. This squeeze on margins is mostly due to the rising cost of production, with significant increases in both variable costs (i.e. fertiliser, seed, diesel), as well as overhead costs (i.e. labour, machinery repayments, insurance, professional services).
We had an extensive discussion about how it’s important to have a good handle on both your fixed and variable costs, as well as income so that you “know your numbers” for each enterprise. While there will be costs that can't be reduced further, knowing the detail behind your numbers is useful when looking for opportunities to reduce costs or increase income, even if this is only by a small amount. These small savings can add up to a lot over the whole business, so it’s important to keep an eye on the details to find these “1 percenters” that can lift overall farm profit margins.
The importance of getting outside advice can’t be overstated when dealing with financial issues or change within the business. Your accountant, consultant, bank manager or business advisor are great starting points if you need to talk through your options. The Rural Financial Counselling Service is also available in NSW and north east Victoria.
This is likely to be a very stressful period for some members and we recently produced a blog with some useful tips for keeping on top of our mental health during stressful periods, as well as a list of resources. Learn more.
Thanks to Alister Murphy, SproutAg and Ben Percy, AgInsights, for their contributions to this article.