Keeping an eye on all the parts in the drought recovery juggle

Keeping an eye on all the parts in the drought recovery juggle

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Planning for when, how and if to restock when the season breaks should start now, say farm business experts.

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FROM when to start restocking and what to do it with to how leasing or agisting stacks up and right through to whether you should stay or go, the drought recovery juggle has a million moving parts.

The one message filtering through from those with experience in coming out the other side of drought is to have plan before it rains - even if circumstances change and that plan has to evolve.

Leading consultants including Bush Agribusiness' Ian McLean in the north and Holmes Sackett's John Francis in the south talk about making correct decisions as opposed to the 'right' ones.

Speaking at a webinar hosted by the GrazingFutures team at the Queensland Department of Agriculture and Fisheries this week, Mr McLean said no one had a crystal ball and it was a risky game so the only way forward was to gather all the information possible, weigh it up and make a rational decision.

"That's the correct decision and only time will tell if it's the right decision," he said.

"So often we see people avoid making any decision for fear of it not being the right one and that damages the business more in the long term."

The key aspects to consider in drought recovery were livestock numbers, land condition, cashflow and personal wellbeing, Mr McLean said.

There will be trade-offs and antagonisms within those but consideration should be given to all, he said.

The advice from there: Be clear on your core business and what the success factors for it are. Look at all options but with an eye on getting core business back to full capacity as soon as possible. Develop simple and clear forward budgets so you can see what is coming and evaluate options.

FURTHER READING: Time to hold or fold?

When to restock

After you have pasture growth is the obvious answer but there is far more to that question.

The need for wet season spelling and how long feed will last once there is growth are two key considerations, Mr McLean said.

From now until the end of October, very little pasture growth is probable for most of Queensland based on historical records.

According to the Queensland Government's climate risk information, The Long Paddock, most areas also have a low chance of exceeding median pasture growth in that period.

So the key figures a producer needs to determine right now, according to Mr McLean, is what feed will be available until mid-summer when pasture growth might be expected.

"When the growth does occur, the ability to wet season spell is one of best ways to improve and build land condition," he said.

"Land condition is the foundation of a grazing business. It is the ability of your land to convert rainfall into pasture growth.

"Most environmental damage occurs coming out of a drought so consideration should be given to letting country spell.

"If you've had to draw down on land condition during dry times, that has to be repaid."

If country is in A condition it can generate 100 per cent of its growth potential but very few properties are in that condition. A land condition assessment by someone independent and qualified would be a very helpful tool.

What to restock with

The key question here is what type of livestock your country and existing infrastructure can profitably run but Mr McLean suggests also factoring in what you have the passion and skills to manage well as "you can't afford to be an average producer in any enterprise."

DROUGHT RECOVERY: Bush Agribusiness' Ian McLean.

DROUGHT RECOVERY: Bush Agribusiness' Ian McLean.

Think about whether there is sufficient scale to run a multi-enterprise business, he said.

"Running sheep and cattle is the most common but often in this scenario both are constrained," he said.

The recommendation is if either enterprise is less than 2000 adult equivalents (AE), it's likely to be affected by scale and would be better suited to focussing on just one enterprise.

A useful way to compare options is to weigh up against the 'do nothing' or status quo choice in a set timeframe, say two years.

Factor in what each livestock option will cost landed on the property, the average AE rating for both first and second year, what will need to be spent on the stock (vaccination, shearing), what income will come in each first year (will you sell a percentage), what is more labour intensive and what you will have at the end of the period - that is what will they weigh and what will they be worth.

"Then you can compare the options in terms of what capital is required, annual AE, annual gross profit, gross margin and net cashflow," Mr McLean said.

For example, take cows and calves versus pregnancy-tested-in-calf heifers.

"The conventional wisdom is cows and calves are better because they deliver cashflow but whenever I've done these sums it usually comes out that the costs of that is high compared to heifers, which you buy in as smaller animals, eat less and require lower investment per head," Mr McLean said.

"You can still generate a cashflow by selling those that don't meet your mating criteria.

"The important thing is to do your sums based on information available at that time."

Leasing and agisting

Agistment could be an option. Agents and consultants say it will likely be a competitive market so producers will need to promote what differentiates their property, be it location, scale or timeframe.

For those who are not sure if they have either the financial or personal capacity for drought recovery but don't want to sell, leasing could be a good option, Mr McLean said.

"There are a lot of young people wanting to get into this industry but the price of land is a barrier," he said.

His advice for the lessor: Compare the lease value to what you were receiving in average annual cashflow for the business previously, when it was your stock and your risk.

Then factor in what value you place on retaining ownership and capital gains.

To stay or go?

Plenty of producers are considering marketing their property once feed and water is plentiful, property agents report. Abundant choice will affect prices.

Staying or going is a very complex and personal decision, Mr McLean said.

"There is lot to take into account - the financial side, personal, family, legacy and what alternate options exist for your time and capital.

"From the financial perspective, will capital be eroded, preserved or grown if you stay.

"If you stay on, what will your disposable household income be compared to doing something else and how will that affect your quality of life?"

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The story Keeping an eye on all the parts in the drought recovery juggle first appeared on Farm Online.

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