FINANCIAL RECOVERY FOR GRAINS PRODUCING FARMS

Thursday, 4 June 2009

Australian grain farmers experienced substantial growth in their financial performance during 2007-08, following a dismal year for farm incomes and profitability in 2006-07, with this improvement projected to continue into 2008-09, according to an ABARE report, Australian grains: Financial performance of grains producing farms, 2006-07 to 2008-09.

According to the report, in 2007-08, an improvement in seasonal conditions led to higher yields for grains and increased production which led to the average farm cash income of grains farms more than doubling to $121 700 per farm.

The rise in incomes during 2007-08 was especially large for high and very high cropping intensity farms (farms which generate more than 50 per cent of their receipts from crop sales).

While incomes for the lower intensity cropping farms (farms which generate less than 50 per cent of their receipts from crop sales) did not improve during 2007-08, they are set to recover in 2008-09 as a result of higher grains production and increased beef cattle receipts.

Farm cash incomes are projected to rise in 2008-09 for all groups, with the exception of very high intensity cropping farms (which generate more than 50 per cent of their receipts from crop sales) which are projected to have reduced average farm cash incomes during the year because of the combined effect of a fall in prices and lower production on those farms,” Mr Glyde [Executive Director ABARE] noted.

Assuming improved seasonal conditions, grains producers are in a strong financial position to continue to expand farm production and incomes over the coming years.

On average, grains producers have considerable financial capacity to fund an expansion in the future with high equity levels and strong farm cash flows during 2007-08 and in 2008-09.

The ABARE report provides a caution is that many farms’ high equity levels have been driven by a steady increase in land values in recent years. Growers’ capacity to borrow additional funds is dependent on land values remaining high.