- February 21, 2017
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How Farmers Can Overcome the Commodity Pricing Blues
Last year was a year local farmers would sooner forget. Becoming the victims of supermarket pricing wars, experiencing a decade low for international milk prices and a clog in the wheat pipeline that dropped commodity prices per tonne.
Farming is a notoriously eclectic business. Just as the Greeks would pray to Dionysus, the god of drunkenness, for a good wine harvest, Aussie farmers are too at the mercy of a higher power. The seasons would traditionally determine how well an agriculture commodity performed. Last year, it was another force entirely that shadowed the milk industry in Australia; Vladimir Putin.
Australians may remember the milk movement of 2016. It was a short lived kick start, pushed by social media and Australian Dairy groups, to buy the more expensive, locally sourced milk. It was a sign of desperation as commodity prices had dropped so much that farmers in Victoria were producing milk for a loss.
With commodities set to moderate in 2017, the road to recovery is a gravel road yet to be paved. There are no certainties in the markets. The unpredictability within global commodity pricing has lead to tightening in the agriculture industry. Farmers are now striving to create contingencies for a potential market downfall. By positioning themselves where potentially low crop prices will not be the guillotine to their farm, Aussie farmers are more equipped than ever for undulating commodity prices.
How To Prepare For Low Commodity Prices?
The idea is a simple one, but farmers everywhere are focusing on one thing, reducing operational costs. Reducing the cost of operation does not mean decreasing yield. Instead farmers are investing in new technology and increasing market outreach to make an impact on their overall farm revenue. A sense of community has also born within rural farms. Experts are sharing trade secrets for increasing farm revenue without increasing costs.
If you remember that old aphorism ‘you’ve got to spend money to make money’ it has some practicality here. The tools, the machines and even the seed genetics have all changed face with developing technologies. A single tractor is now capable of doing the work that would have taken three machines to do a decade ago. New bucket switch technology and a huge range of tractor extensions means you can get more bang from your buck when buying a new tractor.
There are also testing fields in the U.S that are applying new crop technology in real world situations. The Texas A&M Agrilife Extension has been consistently researching and testing solutions for the decreasing commodity prices in agriculture. By following research institutes, farmers can stay ahead of the curve and adopt new technology to their crops before they fall behind industry standards.
Duh? Of course you’ve got to tighten your belt when preparing for a potential market fall. But surprisingly efficiency is often overlooked. Academics and business consultants agree that in tense economic climates it is best that farmers avoid high debt loads wherever they can. This means avoiding the gamble.
Last year amid falling milk prices, Barnaby Joyce made a promise to help support struggling Australian farmers with concessional loans. These loans required faith from both the government in the Australian dairy farmers, and the dairy farmers in a returning milk market. It was the type of loan farmers should only take under dire conditions.
The low commodity prices have resulted in farms receiving consistently low-margin returns. This makes it difficult for farms to manage large amounts of debt over long periods of time. It’s important then that farms constantly manage their debt and always pay attention to how it is structured. By planning balance sheets for the worst of times, farmers can remove the risk of being unprepared for commodity hardship.
Fixing old tractors or buying used ones can also save farmers some big bucks. The costs like anything on a farm, have to be stringently assessed. Only then can a farmer determine if it is worth restoring an old tractor, trawling online for a used one, or if it’s the right time to go all in on a new one.
Watching your spending is not all about cancelling services as well. Smart investments will benefit any farm, especially when they improve a farm’s market outreach. Marketing is an under-utilised tool on farms. By increasing export competitiveness and market access, a farm can reach more favourable trade agreements and a wider range of buyers.
Assuring The Best Yield Possible
Another strategy that seems implied. Of course a farmer is going to be doing their best to make as much produce as they can. But the amount of produce a farmer can yield each harvest has been affected by the evolving industry. This increase in produce is a natural evolution and a reactionary one.
The lower commodity prices means one thing to farmers; they are going to need more of it to sell to keep from flipping. Harvesting and irrigation techniques are being refined over time and just as with new technology, paying attention to shifting practices can reassure farmers they aren’t bleeding unnecessarily.
To guarantee the best harvest possible, farmers should adhere to this checklist from the CHS Farmers Alliance;
- Proper soil preparation before planting;
- Applying crop nutrients and fertilisers to improve the life of the plant;
- Applying crop protection products to combat disease, weeds and insects;
- Proper irrigation;
- Effective harvesting practices and techniques;
- Use the appropriate seed genetics to achieve the best yield they can.
The human element is as important within the farm industry as any other. It’s often overlooked, but businesses are shaped from the inside out. Farms may benefit from taking on new staff or interns, or even looking for help from those with business backgrounds. Finding others who share your passion may rekindle your own, which is as important as any other security strategy; remembering why you started farming in the first place.
Maintaining relationships with retailers, lenders, consultants or even competitors will also promote a healthy growth within your business. This may manifest as favourable prices, industry foresight or even inside tips. The benefits of nurturing human relationships is even more important down under, as 99% of Australian farms are still family owned and operated.