Rural Affairs
Issue No. 13 - October/November 2003
Tale of Two Seasons
by Chris Heinjus
The last two seasons typify the main variables in agriculture. The two key factors that impact directly on profitability of a farm are the price we receive for the commodity grown and weather which impacts on yield. Last year we were in the grip of the worst drought reportedly for 100 years. This season has the crop forecasters’ trying to predict how big the Australian grain crop is going to be. It is still early days but the crop conditions across the majority of Australia are looking excellent. Some forecasters predicting the overall crop size to be larger than the record crop size of season 2001—2002. However the price seems to be a different story with commodity prices on a downward trend in recent weeks.
Some of these variables cannot be controlled, but the impact of these variables can be managed. Managing uncertainty is a key to success in any business. Good farmer managers have developed a unique set of skills required for survival in this challenging environment. These skills will enable them to achieve their long—term goals.
As we move into the pre harvest period, the next four to six weeks will determine the final yields of this seasons crops. This will ultimately contribute to the levels of profit farmers will achieve this year. Even though the drought is officially over, the financial and environmental impact of such an event will be felt for some time yet. Lessons need to be learnt from the adversity of the drought. One key lesson that requires constant reinforcing is the attention to price risk management. As a result of costly washouts of physical forward grain contracts last year, many farmers have adopted a “never again” attitude to forward contracts or any form of managing the price risk associated with the production of a commodity. Prices have retreated from earlier highs and if this trend continues, some farming businesses will again not be profitable for this season.
The decision to do nothing as far as managin...
