Greg Kirk Director Planfarm Pty Ltd Poor Price Good Price Poor - PowerPoint PPT Presentation

Greg Kirk Director Planfarm Pty Ltd

Poor Price Good Price Poor Price Good Price Poor Season Poor Season Good Season Good Season 2006 2006 2007 2007 2005 2005 2008 2008 2009 2010 2007 (for some)

Year Low High Range Cash prices $/t FIS 2007 $230/t $460/t $230/t 2008 2008 $192/t $192/t $430/t $430/t $238/t $238/t 2009 $192/t $390/t $198/t 2010 $220/t $359/t $139/t 2011 $237/t $330/t $93/t (5 mths) Pool Prices $/t FOB 1997-2006 $193/t $259/t $66/t 2007-2010 $256 $428/t $172/t

� Data from ▪ The 2005 – 2009 years for, ▪ Selected Planfarm clients across the Wheatbelt ▪ With proven track record and ▪ Excellent managers ▪ Excellent managers � Profit (EBIT) = ▪ Farm operating surplus ▪ Less ▪ Depreciation ▪ Wages of management $100,000

N Low RF Med RF High RF E Low RF S Low RF Total Farm $5,510,000 $2,360,000 $2,760,000 $2,610,000 $3,350,000 profit 05-09 Avg wheat yld 1.47t/ha 2.02t/ha 4.50 t/ha 1.15t/ha 1.55t/ha Best yr 2008 2007 2007 2008 2008 Profit that yr $4,410,000 $1,710,000 $1,430,000 $1,060,000 $1,655,000 % 5yr profit in 80% 72% 52% 41% 49% best yr Worst yr Worst yr 2006 2006 2006 2006 2005 2005 2007 2007 2009 2009 Profit that yr -$505,000 -$442,000 $79,900 -$16,400 -$819,000 Loss yrs in 5 1 2 0 1 1 Avg op cost % 75% 81% 70% 65% 75% ROC % pa 11.2% 2.9% 4.8% 4.3% 3.8% Change Land 8.1% 11.6% 10.0% 7.0% 9.6% Value % pa AssetValue $9.9 M $16.4M $11.5M $12.3M $17.5M

� Production systems � Maximise water use ▪ Dry seeding ▪ Fallow ▪ Row spacing � Manage seasonal risk ▪ Flexible fertiliser inputs and seeding rate ▪ Flexible crop programme ▪ Cereal (wheat) dominant programme � Sheep in the system ▪ 4 out of 5 had sheep (now 3) represent 10-20% of farm income � Highly efficient operationally ▪ Capacity to seed, spray, harvest and transport grain efficiently

� Finance & asset allocation � Conservatively geared ▪ 87% average equity ▪ Range 80% - 100% � Seek and achieve competitive pricing � Seek and achieve competitive pricing ▪ Finance Margins reflect scale and strength of businesses ▪ Also applies to other inputs eg fertiliser, chemical ▪ Work hard to drive down break-even yield � Diversification more important than scale ▪ Only 2 out of 5 have bought farm land in 2005-09. Total area purchased 2625 ha (6% of total area farmed) ▪ Expansion still on agenda but not at any price ▪ Focus on non-farm asset accumulation ▪ Rationalise and manage plant/machinery investment

� Common strategies � Far more strategic in decision making ▪ 30-40% of crop programme sown dry regardless ▪ 30-40% sown once season breaks ▪ Balance dependent of soil moisture levels, soil type and time of seeding ▪ Balance dependent of soil moisture levels, soil type and time of seeding ▪ N decisions based on TOS, soil N, moisture � Limit the damage in the poor years ▪ Willing to test the boundaries – how low can we go ? ▪ Concept of funds at risk – in any season � Don’t miss the good years ▪ At seeding – most years we have no reliable indicator of season ▪ Some – we have very good odds eg 2008 (North wheatbelt) ▪ Need to have exposure to every year – but play the odds

� Grain sales and marketing � Employ grain marketing advisors ▪ Nightmare clients ! ▪ Over-achievers - not happy with anything but the best price ▪ Over-achievers - not happy with anything but the best price ▪ But learning to accept reality ! ▪ Initially employed advisor to get best price – now more for product/market knowledge � On farm storage and grain sales ▪ Will store and/or sell grain off-farm and add value doing so ▪ Not large tonnages – tend to be niches

� Lessons from 2005-09 � Production is vanity, profit is sanity � Risk management is king! � Conserve capital and employ wisely � Do not over gear your farm business � Money can be made anywhere – but don’t miss the good years! � Returns v risk hard to reconcile with alternatives (may be about to change)