Western Australian farmers have plenty of reason for optimism despite poor rainfall and lower yields during the 2015 season, according to Bankwest’s annual Benchmarks report.
Western Australian farmers have plenty of reason for optimism despite poor rainfall and lower yields during the 2015 season, according to Bankwest’s annual Benchmarks report.
The report, which is published in association with consultancy Planfarm, found that return on capital for broadacre farming compared favourably with other financial asset classes.
In the most recent season, the return averaged 4.7 per cent, ahead of the longer-term trend of 4 per cent, the report said.
Yields for wheat, as an example, were 1.9 tonnes per hectare, down from 2.4t/ha two years previously.
Canola, barley and lupin yields were also down.
But those previous two seasons had been well above the norm, with average returns of 8.2 per cent at their peak.
Bankwest rural and regional banking WA manager Richard Bator said rainfall conditions ranged from acceptable to marginal during the season.
The report found many areas that usually had higher rainfall had experienced record lows, or were among the top 10 per cent of driest years.
“The strength of the WA farm business is beginning to show in increased investment in farm size and equipment,” Mr Bator said.
“Total farm returns from the broadacre WA farming businesses compare very favourably to other asset classes in the state.”
The long-term appreciation in land values improved the overall picture, adding about 2 per cent per annum to returns on capital.
Results were strong for the top quartile of farmers, which have the same operating costs and higher revenue as the average.
This cohort has a long-term return of more than 10 per cent, while the most recent season was narrowly above that.
Farmers in that group one zone covering Mullewa and Wubin were estimated to have had equity in their businesses grow more than $4 million in the past six years.
Planfarm consultant Graeme McConnell said although consistently high level management skills were required to maintain a ranking in the top 25 per cent of farm businesses, it was usually only small management changes that were required to achieve this level.
“We find that well-capitalised businesses that adopt a long-term approach with regards to managing their land, labour and capital, and plan and implement well, reach the top 25 per cent,” he said.
“We are consistently seeing the top 25 per cent of businesses achieving double the return compared to the average business.
“The good news is that in a relatively low margin business, small changes in operating cost or income can yield a disproportionate effect on operating profit.
“A consistent approach in this area can have a large effect on the strength of a business.”
