Risk Beyond Farmers’ Control: Grain-Sheep Mixed Farming Systems under Rainfall and Commodity Price Variability

Variability of rainfall and commodity prices are important off-farm factors influencing the profitability of dryland farming. Since neither of the above factors can be predicted, lessons from the past can be a preparation for the future. Analysing farm profit over ten years is suggested as a way to understand the risks inherent in farming. Financial sustainability of a farm business depends mainly on the net growth of farm equity over the years which can be achieved even with fluctuating farm profit. “FarmProf” is a simple spreadsheet model developed in Excel, to analyse both annual farm profit and farm equity of a broadacre cropping farm or a mixed grain-livestock farm over a ten year period. If crop yield data are not available, FarmProf uses rainfall data to estimate crop yields. The model was used to analyse the profitability of a hypothetical mixed farm in North-central Victoria for the ten years from 1988-89 to 1997-98. Annual farm profit varied from year to year between a loss of $20,000 and a profit of $195,000, with an average of $83,200 per annum. There were five high-profit years, three medium-profit years and two negative-profit years over the ten years. It was assumed that the rates and prices of farm inputs remained constant. Even with 2 years of net loss, farm equity doubled over the 10 years from $700,000 to $1,400,000. The contribution of rainfall and cereal price variability to the peaks and troughs in annual farm profit is discussed.