Agriculture's good times are on a roll thanks to a blessed combination of high grain and livestock values, cheap finance and better seasonal conditions, but farmers shouldn't get too gung ho about their earnings prospects and spending plans.
Make the most of the opportunities while you can, but beware there may be a long-lingering cost to be repaid years from now warns agribusiness banker Mark Bennett.
Most agricultural commodities were likely to go into a price decline in the next three to five years.
That could easily mean much greater pressure on cash flows to meet costs such as loan repayments, and a significant cooling in the red hot mood in rural property markets which has lately provided a windfall boost to equity levels on farm balance sheets.
The best agribusinesses will be those with a "healthy degree of caution, realism and an escape plan for when things go wrong", said the Australia and New Zealand Banking Group's agribusiness head.
Budget for next decade
Mr Bennett said while agriculture had so far emerged from the disruption of coronavirus in excellent shape, and times were likely to continue to be good for many, surviving agriculture's inevitable cycles and gyrating markets required serious budgeting and planning for the long term.
Today's expansion or investment decisions needed to make sense not just now, but in seven or 10 years when commodity prices, seasonal conditions, interest rates and farm debt could be far less appealing.
"An investment like more buying land or building new silos will be for a long period of time - you want to make sure the sums still work at a different level when the commodity cycle is at a more normal point, or worse," he said.
Long term investing strategies which took advantage of good times were a trademark of good farmers, however producers still had to heed past experience and memories.
"When you invest for a generation or beyond, it's critical to have a view of where you are in the cycle at any point in time," he said.
"If, for example, you believe the industry is near the peak of a cycle in terms of prices, production or favourable interest rates, it may indicate whether growth or consolidation are imperative."
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Although picking the top of a cycle was almost impossible, the Australian Bureau of Agricultural and Resource Economics and Sciences had tipped a gradual decline by as much as 30 per cent across most farm commodities before 2025-26.
Wheat production was expected to slip about 30pc below 2020-21's bumper yielding and big earning crop.
Meanwhile, although seasonal conditions had improved considerably in many areas, some regions and farm enterprises were still to recover from the past decade's brutal drought.
Drought still biting
Even those who had enjoyed a big grain harvest or bullish livestock conditions in the past year were not necessarily well set up given the drought had drained their finances and livestock numbers and added considerably to their borrowings.
"It's still an uncomfortable period for some people, who need time to recover, as well as time to comfortably invest in their future," Mr Bennett said.
"There are many competing interests for the cash coming in at the moment, including that need to invest for the future."
Once you borrow a few million dollars you still have to keep paying it back in eight or 12 years when market trends could be quite different
While key agriculture sector fundamentals - notably favourable interest rates and robust protein demand - looked assured for a little while, he said borrowing plans had to factor in a long term repayment strategy, plus Australia's exposure to unpredictable geopolitical and trade conditions.
"Once you borrow a few million dollars you still have to keep paying it back in eight, 10 or 12 years when market trends could be quite different," he said.
"You need to give yourself room to move.
"As a strongly export focused industry, agriculture has fared surprisingly well during the coronavirus pandemic, but COVID disruption is still playing out overseas and may yet deliver us a trade shock which reverberates right back to the farm level."
In fact, a post-COVID environment could itself be a shock, particularly for grain markets once Russia reversed its ban on exports.
With a big portion of the Black Sea cereal crop no longer for sale at cheap rates, Australian grain traders were currently enjoying surprising levels of grain market good fortune.
Invest in budget systems
Mr Bennett believed planning for farmland expansion or farm infrastructure spending in today's complex market conditions should ideally include investing in improving record keeping and management reporting systems and also budgeting for good advice to "prove up your business".
"Family farms of all sizes need to know where they are going and the more sophisticated your decision making tools the better you can perform and prepare," he said.
Regardless of whether a farming enterprise was developing a family succession strategy, monitoring debtors and creditors, trying to get better agronomic results, or handling livestock movements or accreditation tasks, investing wisely in this sort of technology and professional advice may be just as important as new infrastructure in the paddock.
"Conditions are very good out there at the moment and there are good investments to be made, but understanding what you're capable of handling and being measured about those decisions will be important."
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