Light at the end of the drought

Nor is the strength and resilience being demonstrated across the agricultural industry. You can see this every day in the individuals and families who have made smart and strategic decisions when it comes to preparing for the worst and mitigating risk. 

" Many farming families have passed this test before.” 

As farmers across New South Wales and Queensland battle the drought, images of dry and desolate land alongside livestock competing for food are stark and confronting in the Australian media landscape.

While it’s important to highlight the hardship, it’s equally critical to remember there are also farmers applying well-considered business practices to make certain their farms get through to the next season.

Australia has long been faced with the challenges of managing an unpredictable climate. Queensland and NSW farmers have experienced the devastations of drought from as early as 1895 to 1903, when sheep numbers were reduced by around half, cattle numbers by more than 40 per cent and average wheat yields dropped to 2.4 bushels per acre at their lowest. 

Back to basics

In Gunnedah - a region that hasn’t seen any decent rainfall since October 2017 - the mood is mixed. However, an underlying current of optimism and getting back to basics is emerging.

Daniel Knapman is a local generational farmer with mixed operations including share farming, cattle, cropping and underground water for irrigation, 20 kilometres north of Gunnedah.

“The conditions are pretty challenging but the drought isn’t any different to what we’ve seen in the past, with the exception of its length,” he tells bluenotes on site at the AgQuip field days in Gunnedah.

“The community realises dry times come and go and most people have their head down and are doing the job from day-to-day.”

Fellow local farmer Tom Swain runs an irrigation property including cotton, rotated with grain, canola, and irrigated seed canola, 30 kms North West of Gunnedah. He says he’s staying focused on the positives.

“Things are tough but you have to look at the upside,” Swain says. “Once we come out of it I think we will see higher grain prices, higher stock prices.”

“So even though it’s tough at the minute, once we push through to the other end hopefully things will plateau out due to higher prices.”

Prices hold

Thankfully prices continue to hold. Lamb prices are at record highs as buyers compete for a smaller offering of well-finished stock, providing some relief.

For beef producers, as female slaughter rates hover around 54 per cent of total beef processing, the impact on breeder numbers and prices once rain does arrive is providing optimism for those feeding through the current lower price cycle.

Not surprisingly dryland farms are finding it most challenging.

“I think the current drought is exacerbated by both the length of time it has been running, particularly in Queensland, and now the sheer area under duress,” Clermont-based dry-land farmer Blair Angus of Signature Beef says.

“This has really depleted available commodities and the dramatic lift in fodder prices coupled with the scarcity of fodder is certainly unprecedented in our time in the industry.” 

Community sentiment is being tested and the long term impacts are top of mind.

“It’s significant as it’s our fifth summer that we’re heading into with really low rainfall and that does take the sting out of people,” Knapman says.

“I think there will be some long terms effects when we do come out of it, in terms of how long it takes people to get back on their feet.”

Pleasingly, most customers we talk to across NSW and Queensland are looking at ways to mitigate the risks that could come with a dry spring and summer.

“Anything to improve infrastructure and capital purchases are on hold, we’re not even thinking about that at a time like this,” Knapman says.

“We won’t buy the silo or put the shed up or buy the new tractor. Instead we’ll be concentrating on the fundamentals, paying the bills that need to be paid, trying to keep employees on track and on some sort of normality.”

Being prepared starts on farm and we’re seeing several strategies being used including crop diversification along with ways to secure affordable water and use it efficiently at a time when it’s harder to come by at a much higher cost.

“We’ve just put an overhead lateral irrigator in to try and save a bit of water,” Knapman says.

“Trying to better retain moisture, use crops that don’t require as much moisture and having crops that can be planted at different times so you have more of an option for when the rain does stop, can all go a long way.”

Swain agrees and believes farmers should also reserve cash flow during lucrative periods.

“Good rotation is important and as water is more valuable I prioritise having enough water, even in dry situations, to finish a crop, whether it’s cotton or canola,” Swain says.

“It’s also important to put some away in a good year to allow for tougher times. We’ll get really good years again, with good yields and big crops. But we also know the dry periods are going to come.”

Challenges

For those with livestock, the challenges can arguably be greater. Cropping can slow or stop, with minimal long term consequences if managed well. However the pressures of needing to feed livestock, preserve genetics and future incomes, can be overwhelming. So too is the potential of having to sell stock and buy them back at a higher price.

It is here we see the importance of forward planning and risk mitigation rewarding those proactive producers who consider drought preparedness as an ongoing part of their business.

There are producers who filled their silos throughout 2017 when barley was as low $A125 a tonne, cut hay and silage where surplus feed allowed, or utilised Farm Management Deposits, all in preparation for tougher times.

“Annual grass budgets at the end of the wet season and the flexibility to change the liquidity mix within the herd (like turning off steers a little earlier) are short term strategies,” Angus says.

“Longer-term strategies include continued focus on genetics for a low maintenance herd and building soil carbon levels, improved water reliability and pasture resilience.”

Some argue the response to the drought across many fronts has come too little too late and if this drought teaches us anything it’s the importance of preparedness.

“There’s always going to be some farmers that need a bigger leg up than others during drought,” Knapman says. “But I think the government should be focused on doing more for people during better conditions, they should be more proactive with regards to tax incentives for drought preparedness.”

“At tax time I’m sure there are things the government could be doing there to entice people to invest back into more hay, more silos and more on-farm storage.”

Some individual circumstances and possible outcomes look a lot worse for some than others in drought-declared regions. It’s an undeniably difficult spot that’s hard for most people to fathom.

There is likely no straightforward, best solution. But with this recognition, it equally doesn’t reflect the nature and prospects of the collective industry in NSW and Queensland.

Endurance

Conditions can and will improve, we just don’t know when. It’s a view well held across many farming families in the drought zones.

If anything, it seems communities beyond regional Australia have an improved understanding of industry and the current circumstances, along with a broad willingness to contribute - from individuals to corporates to government and beyond.

“The response of the public in general and so many institutions has been overwhelming,” Angus says.

“We hear a lot about city country divides but this drought has highlighted just how proud Australians are of their farmers and how keen they are to see Australia growing our clean and healthy food.”  

At a bank level it’s a tricky time in many ways. Most of our staff are part of the same regional communities as our customers. Fundamentally we look to balance the current financial need with the likelihood of long-term success under average conditions.

As droughts last longer, this gets tested, but many farming families have passed this test before. I think we all believe a bigger and better industry is absolutely possible given the opportunities the world presents.

It’s a matter of getting past the drought and focussing on all the things that will make the industry more profitable and more resilient to future challenges.

Mark Bennett is Head of Australian Agribusiness at ANZ