Farming System Profitability And Impacts Of Commodity Price Risk

GRDC - Andrew Zull (Department of Agriculture and Fisheries, Queensland), Lindsay Bell (CSIRO Agriculture and Food), Darren Aisthorpe (Department of Agriculture and Fisheries, Queensland), Greg Brooke (New South Wales Department of Primary Industries), Andrew Verrell (New South Wales Department of Primary Industries), Jon Baird (New South Wales Department of Primary Industries), Andrew Erbacher (Department of Agriculture and Fisheries, Queensland), Jayne Gentry (Department of Agriculture and Fisheries, Queensland), and David Lawrence (Department of Agriculture and Fisheries, Queensland)

Type: Research Paper
Knowledge level: Advanced

Farm Table says:

The authors of this paper note in the conclusion: "For the summer dominant system, 70% (P=0.7) of the time the lower intensity system benefited from better commodity prices; and 30% (1-0.7) of the time the higher diversity + legume system returned higher total gross margins due to favourable commodity prices. With the higher intensity theme, the median returns and variation of all cropping systems where similar - apart from higher legume. The latter had an 80% chance of offering lower total gross margins 80% of the time, with far lower returns with low prices (P=0.0) and even with high prices (P=1.0) they were only marginally better than the other cropping systems." Please access the full paper via the link below if this research interests you.

The take home messages from this GRDC funded research are below. Please access the full paper via the link below for methodology, references, acknowledgements and discussion.

Take home messages from the paper include:

  • Large gaps in profitability are possible between the best and worst systems – differences of $92-494/ha per year were found between systems at each site
  • Intensity is the major factor driving good/poor economic performance of the farming system – more so than crop choice. Matching intensity to environmental potential seems to be the most important lever to optimise farming system profitability
  • Increasing crop intensity increased costs and risks, but potentially higher crop income wasn’t realised over the dry run of seasons and hence has produced lower gross margins than more conservative systems
  • Lower crop intensity had lower system gross returns, but because of lower inputs and costs may achieve a more favourable return on investment at lower risk when there are limited planting opportunities. These systems have achieved lower gross margins than the baseline system in all but one comparison
  • Increasing legume frequency has the potential to capitalise on favourable legume prices but using long-term prices has rarely exceeded gross margins of baseline systems
  • Increasing nutrient supply incurred higher costs and required favourable seasonal conditions to increase grain yields and gross margins – this rarely occurred over the experimental years (excluding Trangie 2016 and Emerald 2017 where significant crop responses were obtained)
  • Systems involving crops with higher price variability (e.g. pulses, cotton) had limited downside risk but increased upside opportunities of higher economic returns. Even when comparing recent and long-term grain prices, the relative profitability ranking of systems rarely changed
  • Selecting a crop system is a long-term decision with unknown future yield and prices, hence choose systems that maximise system productivity and resilience, rather than responding to current commodity prices.

2020 - Australia - GRDC - Andrew Zull (Department of Agriculture and Fisheries, Queensland), Lindsay Bell (CSIRO Agriculture and Food), Darren Aisthorpe (Department of Agriculture and Fisheries, Queensland), Greg Brooke (New South Wales Department of Primary Industries), Andrew Verrell (New South Wales Department of Primary Industries), Jon Baird (New South Wales Department of Primary Industries), Andrew Erbacher (Department of Agriculture and Fisheries, Queensland), Jayne Gentry (Department of Agriculture and Fisheries, Queensland), and David Lawrence (Department of Agriculture and Fisheries, Queensland)
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