Risk Beyond Farmers’ Control: Grain-Sheep Mixed Farming Systems under Rainfall and Commodity Price Variability
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Variability of rainfall and commodity prices are important off-farm factors
influencing the profitability of dryland farming. Since neither of the above factors can
be predicted, lessons from the past can be a preparation for the future. Analysing farm
profit over ten years is suggested as a way to understand the risks inherent in farming.
Financial sustainability of a farm business depends mainly on the net growth of farm
equity over the years which can be achieved even with fluctuating farm profit.
“FarmProf” is a simple spreadsheet model developed in Excel, to analyse both annual
farm profit and farm equity of a broadacre cropping farm or a mixed grain-livestock
farm over a ten year period. If crop yield data are not available, FarmProf uses rainfall
data to estimate crop yields. The model was used to analyse the profitability of a
hypothetical mixed farm in North-central Victoria for the ten years from 1988-89 to
1997-98.
Annual farm profit varied from year to year between a loss of $20,000 and a profit of
$195,000, with an average of $83,200 per annum. There were five high-profit years,
three medium-profit years and two negative-profit years over the ten years. It was
assumed that the rates and prices of farm inputs remained constant. Even with 2 years
of net loss, farm equity doubled over the 10 years from $700,000 to $1,400,000. The
contribution of rainfall and cereal price variability to the peaks and troughs in annual
farm profit is discussed.