Financial risk analysis of lucerne pasture establishment: Under-sowing vs Direct sowing

Transcription

1 4 Feb Nordblom, Hutchings et al AARES 2016 slides Financial risk analysis of lucerne pasture establishment: Under-sowing vs Direct sowing Tom Nordblom 1,3 Tim Hutchings 3,4 Guangdi Li 2,3 Richard Hayes 2,3 John Finlayson 5 Tom Nordblom 1,3 Tim Hutchings 3,4 Guangdi Li 2,3 Richard Hayes 2,3 John Finlayson 5 1. Economics & Analysis, DPI Strategy & Policy, NSW DPI, WWAI 2. Pasture Systems, DPI Agriculture, NSW DPI, WWAI 3. Graham Centre for Agricultural Innovation (an alliance of CSU and NSW DPI), Albert Pugsley Pl, Charles Sturt University, Wagga Wagga, NSW 2650 Australia 4. Meridian Agricultural Consulting, Yendon, VIC John Finlayson Research Ltd, Whangarei, 174, New Zealand NSW DPI = NSW Department of Primary Industries New South Wales, Australia WWAI = Wagga Wagga Agricultural Institute, Pine Gully Road, Wagga Wagga, NSW 2650 Australia Contributed paper, 60th AARES Annual Conf., Canberra, ACT, 2-5 February

2 Lucerne, direct-sown 2

3 Wheat, under-sown with Lucerne 3

4 Wheat, under-sown with Lucerne Despite consistent messages on reduced pasture performance, due to competition between the cover-crop, and the lucerne, farmers in the mixed-farming zone of south-eastern Australia continue to rely on the practice 4 McCormick, Hayes, Li and Norton (2014)

5 Cropping phase of rotation 5 years of Canola cropping Wheat Barley Lupin Wheat + under-sown Lucerne Pasture phase of rotation first grazing year Lucerne 4 years of Lucerne pasture Lucerne Lucerne 5

6 Cropping phase of rotation 5 years of cropping Pasture phase first grazing year 4 years of pasture Canola Wheat Barley Lupin Wheat of rotation Lucerne directly sown Lucerne Lucerne Lucerne 6

7 Initial findings from field experiments over four years along a 200 km North-South transect from Ariah Park to Brocklesby, NSW (Li et al., 2015) seeding 7

8 6000 Actual v. predicted Dry Matter Year 2, all sites R 2 = Actual DM kg/ha Predicted DM, kg/ha Comparison of observed and predicted pasture DM yields in the first year of grazing 8

9 90000 Comparison of annual energy yield of established lucerne pastures (Li et al. 2014) MJ/ha Undersown Direct sown In energy production, Direct-sown is ahead of Undersown in 40 out of 60 years ( ). In years of lucerne establishment failure, the pasture in that paddock is assumed to revert to an annual pasture. 9

10 Direct sown lucerne pasture Thousands $350 Hundreds $300 Annual supplementary feed cost $250 $200 $150 Probability Highest 10% Median $100 $50 Lowest 10% $ Stocking rate dse/ha. 10

11 Cumulative probability 90% Annual whole-farm gross margin profiles for Sheep and Crop enterprises. Sheep CV 18% Crop CV 50% 70% All crops 50% 40% 30% 20% 10% Sheep 0% $0.0 $0.1 $0.2 $0.3 $0.4 Gross margin (millions) Similar gross margins, but cropping has higher variability -- about three times riskier than Sheep -- 11

12 Cum. Probability 90% 70% 50% 40% 30% 20% 10% 0% Dynamic budgeting for risk 10 year cash margin estimates for dynamic analysis 15 dse/ha, equity, direct sown pasture Effect of starting equity on decadal cash margin Direct sown lucerne, 15 dse/ha Starting equity Decadal cash margin (millions) 12

13 Effects of sowing methods and stocking rates on wholefarm decadal cash margins, given starting equity of Comparing direct and under-sown lucerne pasture equity, median values $200,000 $0 -$200,000 -$400,000 Median values only Decadal cash margin -$600,000 -$800,000 -$1,000,000 -$1,200,000 Direct sowing Undersowing -$1,400, Stocking rate, dse/ha 13

14 Effects of sowing methods and stocking rates on wholefarm decadal cash margins, given starting equity of $1,500,000 $1,000,000 $500,000 Direct sowing Direct sowing, equity $1,500,000 $1,000,000 $500,000 Under-sowing Under-sowing, equity $0 $0 High 90% Decadal cash margin -$500,000 -$1,000,000 Decadal cash margin -$500,000 -$1,000,000 High Median Low High Median Low -$1,500,000 -$2,000,000 -$1,500,000 -$2,000,000 Low 10% -$2,500,000 -$2,500, Stocking rate, dse/ha Stocking rate, dse/ha 14

15 Effects of sowing methods and stocking rates on wholefarm decadal cash margins, given starting equity of $1,500,000 $1,000,000 $500,000 Direct sowing Direct sowing, equity $1,500,000 $1,000,000 $500,000 Under-sowing Under-sowing, equity $0 $0 High 90% Decadal cash margin -$500,000 -$1,000,000 Decadal cash margin -$500,000 -$1,000,000 High Median Low High Median Low -$1,500,000 -$2,000,000 -$1,500,000 -$2,000,000 Low 10% -$2,500,000 -$2,500, Stocking rate, dse/ha Stocking rate, dse/ha 15

16 Effects of sowing methods and stocking rates on wholefarm decadal cash margins, given starting equity of $1,500,000 $1,000,000 $500,000 Direct sowing Direct sowing, equity $1,500,000 $1,000,000 $500,000 Under-sowing Under-sowing, equity $0 $0 High 90% Decadal cash margin -$500,000 -$1,000,000 Decadal cash margin -$500,000 -$1,000,000 High Median Low High Median Low -$1,500,000 -$2,000,000 -$1,500,000 -$2,000,000 Low 10% -$2,500,000 -$2,500, Stocking rate, dse/ha Stocking rate, dse/ha 16

17 Effects of starting equity on decadal ending cash balance (15 dse/ha) Cum. Probability 90% 70% 50% 40% 30% 20% 10% 0% Cum. Probability 90% 70% 50% 40% 30% 20% 10% 0% Starting equity Start equi Decadal cash Decadal margin (millions) cash margin (millions)

18 Effects of starting equity on decadal ending cash balance (15 dse/ha) Cum. Probability 90% 70% 50% 40% 30% 20% 10% 0% Cum. Probability 90% 70% 50% 40% 30% 20% 10% 0% Starting equity Start equi Decadal cash Decadal margin (millions) cash margin (millions)

19 Effects of starting equity on decadal ending cash balance (15 dse/ha) Cum. Probability 90% 70% 50% 40% 30% 20% 10% 0% Cum. Probability 90% 70% 50% 40% 30% 20% 10% 0% Starting equity Start equi Decadal cash Decadal margin (millions) cash margin (millions)

20 Conclusions Advice to farmers based on average years, average prices and gross margins, can be very misleading. It masks the wide range of whole-farm outcomes possible due to price and yield variations and the effects of debt on viability Chasing higher production alone can drive farmers into unsustainable debt Reducing debt is often more important than raising production, particularly for those with low equity 20

21 4 Feb Nordblom, Hutchings et al AARES 2016 slides Financial risk analysis of lucerne pasture establishment: Under-sowing vs Direct sowing Tom Nordblom 1,3 Tim Hutchings 3,4 Guangdi Li 2,3 Richard Hayes 2,3 John Finlayson 5 Tom Nordblom 1,3 Tim Hutchings 3,4 Guangdi Li 2,3 Richard Hayes 2,3 John Finlayson 5 1. Economics & Analysis, DPI Strategy & Policy, NSW DPI, WWAI 2. Pasture Systems, DPI Agriculture, NSW DPI, WWAI 3. Graham Centre for Agricultural Innovation (an alliance of CSU and NSW DPI), Albert Pugsley Pl, Charles Sturt University, Wagga Wagga, NSW 2650 Australia 4. Meridian Agricultural Consulting, Yendon, VIC John Finlayson Research Ltd, Whangarei, 174, New Zealand NSW DPI = NSW Department of Primary Industries, New South Wales, Australia WWAI = Wagga Wagga Agricultural Institute, Pine Gully Road, Wagga Wagga, NSW 2650 Australia Contributed paper, 60th AARES Annual Conf., Canberra, ACT, 2-5 February