BankWest Bank of Western Australia : Planfarm Bankwest Benchmarks 2016/17 shows harsh frosts hit WA broadacre farming returns
13 October 2017
Western Australia's broadacre farming industry is in 'strong and resilient' form, despite the vagaries of the climate, according to the annual Planfarm Bankwest Benchmarks report , published today.
The report, produced from analysis of data from 550 farm businesses across WA's broadacre farming region, shows the average WA farming business made an operating surplus of $667,815 from a turnover of $2,203,904 (down from $680,227 from a turnover of $2,124,873 last year). The industry as a whole recorded a return on capital of 4.2% in the 12 months to February 2017, down from 4.7% last year, a reduction driven largely by a combination of reduced yields from production issues and reduced prices from a large global supply of grains.
While lack of rain in many northern growing areas was the biggest problem in the 2017 winter grain growing season, frost was the biggest weather issue last year, particularly in the central and southern inland areas.
The severity of the frost in the southern-inland areas (particularly Hyden and Newdegate districts) is shown by the fact that these areas experienced the lowest cash returns of all broadacre regions of just 0.2% and 1.9% respectively in the 12 months to February 2017.
Bankwest State Manager WA, Rural and Regional Banking, Richard Bator, said the frost played a big part in what was expected to be a bumper year.
'In 2016, production was widely expected to be among the highest in many growers' experience. However, with extreme frost experienced and low grain prices, the end results were a different story for many.
'The sheer number of frost events in affected areas meant that most crops were exposed multiple times during the critical flowering period. Areas less affected by frost generally produced above average yields and returns,' he said.
Planfarm's Managing Director Greg Kirk backed Mr Bator's sentiments and said: 'There's little benefit in thinking 'what might have been', but if crops in the southern half of the state had been allowed to achieve their potential, 2016 was well on target to exceed previous records by a considerable margin, and be an exceptionally profitable year, even with lowered grain prices at harvest.'
WA broadacre farmers delivered a record 16.6 million tonnes of grain in 2016, with operating profit per hectare increasing by 13.4% year-on-year. This higher grain production was off the back of improved grain yields in every category during the 12 months to February 2017 (year on year increases were seen in wheat - 15.8%, barley - 18.2%, canola - 60.0% and lupin - 25.0%).
The continuing benefits of economies of scale are also evident in the report's findings with WA's bigger farms outperforming and demonstrating greater efficiency.
'The top 25% of WA's broadacre farm businesses achieved more than double the return on capital of the average farm business in 2016, with only marginally higher costs. The top 25% achieved an average return on capital of 10.1% compared to 4.2% for the average farmer,' commented Mr Bator.
Last season, the top 25% of farming businesses had 24.0% higher wheat yields, 20.4% better water use efficiency and a 9% larger cropping area - highlighting how scale, when efficiently managed, can drive bottom-line performance.
The report analyses WA's broadacre farming businesses across both short-term (2016 data) and long-term performance (a ten year period).
The long view data shows WA farmers achieved average annualised cashflow returns of 4.5% over the last decade, while the top 25% realised 8.6% over the same period. Additionally, the strength of WA's broadacre farming industry is shown in strong annualised cash returns and land value changes in the 10 years to February 2017.
Bankwest's chief economist Alan Langford said the 2016 high yield failed to materialise into healthy financial returns due to grain prices.
'Domestic grain prices fell by more than 10 per cent in 2016-17 due to a fourth year in a row of record global wheat harvests and stocks,' said.
'However, the 10-year analysis in the report supports the widely held view that broadacre farms can be a good long-term investment, particularly in a low interest rate environment.
Mr Bator said all businesses need to invest in technology, talent and economic insights, all critical enablers in today's uncertain economic times.
'I encourage the WA agricultural industry to use the information in this report to continue to improve their returns, and highlight that with strong management farming can compete with or exceed returns from other major investment classes,' he added.
The south-West land division of Western Australia, approximately bounded by a line fom Kalbarri, Southern Cross and east Esperance.
Single year (2016) analysis - This aims to highlight the performance of the most recent production year. Farming businesses are ranked on operating surplus/ha/mm of rainfall recorded in the growing season. This is used as a measure of how efficiently a farm business has used the rainfall they received during the growing season.
Multi-year analysis - This is a rolling 6 and 10-year data set that considers how businesses perform over several years. Due to reduced seasonal variability in this data set, faming businesses are ranked simply on return on capital.
For more information contact:
Bankwest Senior Manager, Media & Communications
0421 637 028
About the 2016-17 Planfarm Bankwest Benchmarks
This report is published for the benefit of farmers and those involved in WA agricultural industry.
The 2016-2017 Planfarm Bankwest Benchmarks are derived from 550 businesses across Western Australia with data supplied by clients of Planfarm, Bankwest, BJW Agribusiness, AgAsset, and BusinessAg. We continue to be grateful to the contributors of data and all the farm businesses involved in the annual benchmarks for their support of this analysis.
Farming is a unique business that is evolving rapidly with changes in farm business structures, technology, data, research, consumer demand and global competition. The Planfarm Bankwest Benchmarks has become a powerful tool for WA farmers and investors to better understand the business of farming and the key aspects driving performance over the short and long term.
Bankwest provides personal and business banking solutions for more than 1.1 million retail and business customers across Australia. Bankwest customers enjoy access to an extensive network of stores and business centres, direct and third party distribution channels, agencies and electronic banking facilities, as well as 24-hour telephone and internet banking. Bankwest is a division of the Commonwealth Bank of Australia.