There were two farmers living near each other on roughly comparable farms in Australia.
One farmer, Tom, borrowed $2 million in good times to buy another block for that $2m. The bank was happy to lend him 100% of the $2m on security of both blocks. He borrowed $100,000 more to stock the new block and fix the yards and fences.
When it went dry and feed reduced in 2018 he became a bit nervous about feed so he locked up a couple of paddocks to spell them. Eventually though he had to open them up for feed because it did not rain.
When someone suggested he sell down stock he explained that his breeders were top quality and were the result of decades of breeding. It would cost a fortune to restock when the rain came. In the end it became so dry that numbers of stock started dying and the rest looked pretty ordinary.
When he figured many would just die or he’d have to shoot them, he trucked most of them out to sale and bought in feed for the rest. The cattle sold were in poor condition and prices were poor anyway, so he did not get much for them.
Then the bank rang to say he was over his limit and had missed two payments on his term loan. They’d just have to wait.
By the time the drought broke he was broke too because of the feed he was buying in. The ground was bare. Feed prices had skyrocketed. His debt has skyrocketed too. But he had managed to keep a quarter of his breeders. He started looking for a loan to buy back in to re-stock the place once the feed grew but that took months so he continued to hand feed a bit.
His neighbour, Bill, had also looked at the nearby block when it was for sale but figured he could not even raise half the money and would have to borrow the rest. So he gave it a miss. He told a friend “The problem with borrowing is that I would have to make repayments in dry or other hard times and that is not easy. I already have a small loan nearly cleared.”
He used Excel on his computer to graph a sort of index – every day he multiplied the rain in mm received for the year so far by the number of hectares he had and divided it by his livestock holding that day. He called it a “Drought Index”. It sort of told him how dry it was going – how much water had fallen on his place to grow pasture for each head of stock he was carrying. Nothing fancy. The graph fell as the rain didn’t.
In addition to that he had put a big note on his office wall reading “When lush long pasture goes, start reducing stock numbers.”
When it stated to go dry in 2018 the first thing he did was start to watch his graph carefully and as it fell, he cut out all unnecessary spending. He still had to pay rates and insurance and fuel for the vehicles but he used them sparingly.
As he drove around checking the stock one day he pulled himself up with a jolt and thought “The feed is looking a bit short and just not quite so good.”
Next sale week he mustered his stock, drafted off dries and other culls and sent them to the saleyards. His stock were in top condition and the market was high, so he did well at the sale. The proceeds he banked into a special “drought savings account” he had opened years ago at the bank.
But the season stayed dry with not a cloud in the sky. Every month he sold more of his stock, selling 10% to 20% each month or so. Every day he was looking at the blue sky, his graph, the pastures and his stock.
He rang the bank, as he still had that small debt from years ago that he was paying off. He pointed out to the banker that he had been making double payments for the past few years and asked if, should things get worse, he could take a break from repayments for a while to use up some for the fat he had accumulated in the account. After checking with the credit officers the banker rang back and said that would be fine as he was will in front of where he needed to be.
The banker asked if he had any recent financial statements that credit could have. He replied that he produced monthly Profit and Loss figures for each month and year to date, with columns showing last year’s results and the budget. He’d send a set in. They showed profits a bit better than last year and ahead of budget. He explained that was because he had sold stock as it went dry, converting them into profit. The banker said not many of his clients did that. The farmer added that he emailed the figures to GBAC monthly and with a 15 minute review that cost next to nothing, he was given a quick analysis of what the figures meant.
Bill had been told by an uncle that the farm needed to produce cash for him each year. So he had kept costs pretty low and squirreled money away in a bank account, without letting his boundary fences fail. That also gave him some fat to ride the drought if it persisted, which it did.
By the time rain with follow up rain came, he was only holding a quarter of the breeders he had two years before, but of course they were the best ones. He decided not to buy back in, but to breed up numbers. Natural increase was about 90% and deaths few. By hanging onto all the females and breeding from them, his numbers were back up in five years. Funds had been tight, as numbers were light, but that meant the pastures had recovered fairly quickly.
Comparisons can help
It is always interesting to see what other farmers do. That is one of the advantages of running our own places and consulting farmers all over Australia at the same time. You learn a good bit that way. I have also learned a good bit in workshops from people like Terry McKosker and Bud Williams.
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