Buoyant times on-farm create critical formative era

Farm viability now at never-before-seen level

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Time ripe for succession planning as farmer sentiment surges

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INCOME expectations and investment intention among farmers is now at exceptional levels, prompting talk family-owned agriculture is in a critical formative period for setting up long-term prosperity and for succession planning.

Farmer sentiment is surging, with bank rural confidence indicators breaking records, and on-farm investment levels are skyrocketing as farmers look to capitalise on high returns to grow productivity.

Rabobank's rural commodity price index is now at its highest ever level and the bank's latest rural confidence survey shows more than 90 per cent of farmers expect the current conditions to continue or improve further over the next 12 months.

Rabobank Australia chief executive officer Peter Knoblanche described the conditions in Australian agriculture right now as 'near perfect' with strong demand across commodities and prices in a number of sectors at, or near, record highs. That is running parallel to excellent seasonal conditions, low interest rates and a lower Australian dollar.

"Optimism is also being underpinned right now by the fact that the main factors driving commodity pricing higher are forecast to hold until at least the end of the year," he said.

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Farm business consultant John Francis, Agrista, based in southern NSW, said the operating return - that is the measure of profit relative to the value of assets under management - was the key measure of a farm's viability and it had been phenomenally strong.

"What we've seen in the past four years is a doubling of asset values on many farms, which is exceptional, but the issue is that this makes it harder to maintain the same level of profitability," he said.

"We need to have the profit side growing at the same rate.

"That has occurred, with commodity prices at all-time highs.

"However, it does have to be contextualised with the understanding that a few years ago we were in the midst of a rip-roaring drought."

Still, the combination of a second consecutive year of good seasonal conditions, high returns and surging demand, both here and overseas, for agricultural products has created a farm business viability never before seen.

Rabobank says the continuation of such favourable business and seasonal conditions would have major benefits for the longer-term viability of the Australian farm sector.

For one thing, the situation was encouraging young family members to return to the land and enabling good succession planning to take place which was often not possible during drought years, Mr Knoblanche said.

However, key to capitalising would be well-considered strategies and investment, experts said.

Mr Francis said the challenge moving forward was that it becomes harder and harder to find productivity gains and ensure profitability moves forward at the same rate as asset value growth.

"That calls for a strong development mentality - really thinking about how production can be lifted from a lower marginal cost," he said.

"The answer may come in intensifying operations, driving scale, genetics, grazing efficiency or strategic infrastructure investment that will drive labour efficiency and create drought resilience for the future.

"Now is the time to make hay while the sun shines. When times are so good, we must plan ahead and set ourselves up for long-term prosperity.

"Options that didn't pay in the past may now deliver good returns due to changes in commodity prices. Returns on investment have changed so it is worth taking the time to crunch the numbers."

Adding lime, pasture improvement and additional fertiliser are examples.

When commodity prices were lower some of these options took over ten years to break even. Under current conditions the time to break even might be far less, he said.

In Western Australia, where positive sentiment in the Rabobank survey was strongest, on-farm investment was at all-time highs and it was being driven by the desire to boost productivity in the long-term, machinery sellers report.

Farm Machinery and Industry Association of Western Australia executive officer John Henchy said the stars had certainly aligned - rain had fallen at just the right time and crops were looking magnificent.

Tractor sales were up 64pc on last month, and 34pc year-to-date, he said.

"Agtech investments are also very high - people are looking to lift efficiency, and thus productivity, and set up for the long term. Technology is the way to do this. It's what is driving our industry," he said.

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