FFN Opinion – Time to consolidate
Future Farmers Network directors regularly give their opinion on the latest news, events and issues in agriculture for an article for Australian Community Media. Here’s the most recent article from FFN Director Lachlan Lynch
What a time to be involved in grassroots beef production. Cattle prices are at all-time record highs and seasonal rainfall is starting to return to normal patterns. With generally good rainfall over most of the eastern seaboard, any producers that purchased cattle twelve or more months ago will be enjoying some of the strongest trade margins ever experienced in beef production. This situation has created a positive mindset across many rural and regional communities all over Australia.
With prices at such high records, selling cattle has never been a more enjoyable process. However, Australian beef is now priced as some of the most expensive beef in the world and our processing and feedlot sector is experiencing margin contractions, making it seem inevitable that these prices cannot last forever. Therefore, the questions must be asked; how long will this last and what will happen when the inevitable price correction arrives? What will the beef industry look like then?
Individual producers shouldn’t be worried about when such a market correction will occur, as this is largely outside of their control. Instead, they should focus on how they can maximise the benefits of this strong cash flow period to ensure that their business is more sustainable for the next cyclical downturn.
We must also reflect on, and learn from, past events that have challenged individual producers and the industry as a whole. When things haven’t been easy, such as. droughts, floods and market downturns. History tells us that these events will happen again. Now is the time to consider what is required to survive the tough times. How can our businesses be better equipped to survive and prosper? Also, will you be able to find, and take advantage of, an opportunity in a crisis.
Depending on your individual business’ situation, consolidating to make a more sustainable business can look very different. It could include, using excess cash to reduce liabilities, and therefore reduce finance costs. Or, maybe there are capital improvements that can be made to improve the carrying capacity of your business or reduce running expenses. Do you have plant and equipment that can be replaced to in turn, reduce your maintenance costs in the future? Or, can your business simply set aside cash for a rainy day (or in our case, when it forgets to rain).
Whilst a number of these suggestions involve spending the cash earned from these high commodity prices, the focus should be on business consolidation rather than expansion. With record beef and land prices, caution should be applied when looking to expand during these times.
Every situation is different, however, in most cases, business consolidation should come before expansion in this part of the beef industry market cycle. Enjoy these times while they last and make sure you utilise them as best you can.
