When to reign in the Cheque book in those "clanger" seasons
- By: "Farm Tender" News
- Cattle News
- Jan 22, 2018
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Western Australian growers are reminded there are strategies to help in dealing with a ‘clanger’ year, in the wake of the dry and difficult season experienced in many parts of the state’s northern and central grainbelt in 2017.
Rob Grima, farm management consultant at Planfarm, says there is always a chance a ‘clanger’, or poor season will occur and while they are difficult to predict, growers can manage them with careful decision making.
He will speak on the subject at a Grains Research and Development Corporation (GRDC) Farm Business Update in Yuna on Thursday, February 8.
“We generally don’t have advanced warning of a ‘clanger’ season and typically the majority of our cropping program is sown without really knowing what the winter and spring will deliver,” Mr Grima said.
“Most commonly it is caused by a severe drought or dry season, or frost. However, extremely low grain prices or other family or personal factors can also create havoc.”
Mr Grima said once the warning bells start ringing for a poor season ahead, there are still a number of steps growers can take, even if a large percentage of variable costs have already been spent
“The number one rule is close the cheque book and do not spend a single cent if it is not absolutely necessary,” he said.
“The main reason is so that you retain as much capital in your business as possible which will enable you to rebound in the following year and trade your way out of trouble.
“Talk to your trusted advisers and confidants. Quantifying your position and expected outcome is essential.
“Capital items need to be reviewed immediately. Do you need to build the $80,000 shed this year? Would that money be valuable to pay for fertiliser and diesel next year?
“In the event of frost, it can be very difficult to manage if it occurs very late in the season."
Mr Grima said there are not many options with respect to cutting spending, but there might be some options regarding the decisions you make about the crop.
"Although experience suggests a decision to deviate from the harvesting plan needs to be made judiciously and quickly," he said.
“Finally, consider your liable tax position.
"For example the 2016 harvest was bountiful for many growers in the Geraldton port zone and the expected tax burden for many is likely to be massive.
"This tax bill is expected to be paid in May 2018, right when some growers may have a liquidity crisis, following a poorer season in 2017.”
Taking a longer term view, Mr Grima said businesses with a strong balance sheet can ride out the worst years more easily than those with a weak balance sheet.
“Hence the first rule for your business is to try to get to the stage of being able to withstand these shocks more easily,” he said.
“The decisions you make in the good years are far more important than the decisions you make in the bad years.
"Invest your hard-earned money very wisely, particularly during good years when you have a lot of money flowing through the business.”
The GRDC Farm Business Update in Yuna will be held on Thursday, February 8 at the community centre at 6961 Chapman Valley Road from 9am to 4.30pm. Update events will also be held in Cunderdin on Monday, February 5, and Kojonup on Tuesday, February 6, 2018.
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