Managing the drop in farm profits this summer

As climatologists warn of a potentially catastrophic bushfire season, farmers are grappling with the twin challenges of seasonal volatility and declining profitability.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) is forecasting the value of agricultural production to fall by 5% to $98.3 billion in 2026-27, and average broadacre farm business profits to decline by 70%. The tougher outlook is due to lower crop production volumes and livestock prices, and expectations of a dry season which is likely to impact grower decisions.

On the weather front, experts are predicting a strengthening El Niño will create hotter temperatures and less rainfall, with eastern and northern Australia feeling the greatest impact.

When considered alongside higher input costs such as fuel and fertiliser, the pressure on farm businesses is far from over.

Challenging the instinct to ride it out

For established farming businesses, difficult seasons are nothing new and many are used to managing through periods of uncertainty. However, the convergence of factors – especially following some of the hardships faced over the past year – could leave some with less room to absorb further shocks.

In this environment, it’s essential to know your numbers and review your financial position early, as this will allow you to respond faster and with more confidence if seasonal or market conditions deteriorate further. You will want to know:

• How much cash the business is likely to need over the next six to 12 months
• The cost of loans and repayments, and whether they will still be manageable if income falls
• The machinery, equipment and assets you own that could help improve cash flow if needed
• Where the business would be most exposed if conditions get worse.

This foresight can also reveal proactive options that won’t always be available if the business starts to fall behind on obligations. For example, lenders are generally more willing to support restructuring discussions when there is still a clear pathway forward and sufficient time to plan.

Protecting cash flow before pressure builds

When a business is on the verge of requiring a restructure, the best solution isn’t always to take on more debt. Instead, it may be to:

• simplify existing loans
• restructure repayments to match the farm's cash flow
• reduce finance costs where possible
• review machinery, equipment and other assets that may be tied up or underused.

Sometimes machinery and equipment can provide opportunities to improve liquidity without selling productive land. 

The key is to base decisions on realistic projections rather than best-case scenarios. Have your accountant or advisor run cash flow forecasts and scenario models that account for lower yields, reduced commodity prices (where relevant), and ongoing input cost pressures. Looking ahead in this way gives you more time to adapt and address issues before they become urgent. It also helps when discussing options with lenders, suppliers and other stakeholders.

Farmers cannot control the weather, but they can control how prepared their business is for periods of uncertainty. With profit forecasts under pressure and seasonal risks increasing, early planning may be the most valuable investment your farming business makes this summer.