Farming wisdom says costs are mostly fixed, so run as many stock as possible and it will produce the highest profits. Government calls that “increasing productivity”. I did that in my early days but then changed tack after listening to others and applying my Chartered Accountancy brain to it. Accountants are most interested in the bottom line – the profits you have to spend in return for running your farm. That is as much affected by stocking rates and debt levels as by seasons.
I don’t say it would work for everyone but as you recover from “drought flood and fire” you could try selling more stock as you reach 80% of what you would normally carry. By carrying more stock we keep more cash profit locked up , mostly in breeders. Sounds like good conservative policy. However, because it does not produce cash from the sale of those extra breeders or others held, we might have to borrow more from the bank or do without the money. It perhaps depends on savings.
The most destructive factor in farming is not drought, flood or fire, but debt. Interest and charges are outrageous but worse it is like getting stuck in a bog. The harder you try to get out, the deeper in debt you get. A seriously bad season or price collapse can turn manageable debt into a long term financial disaster. Our most satisfying and productive work in GBAC is rescuing farmers from the bog of bank debt. Sometimes we use a financial rope and sometimes a “snatch’em strap”. Either way they are pretty happy afterwards.
If those extra breeders and their progeny held back to build numbers have to be sold in drought conditions, which often happens, then the prices are pretty ordinary compared to if they are sold at the end of a wide-spread re-building phase or even in a normal season. So the same cash does not flow in.
When you do try these sort of exercises to see the impact on profit, examine your financial statements with someone who can analyse them properly for you to see what the result was. Figures can be very misleading and plenty of farmers are misled even more than they try to mislead the tax office. Get a financial analyst who knows both accounting and farming to work on what your accountant prepared for the ATO and see what surfaces. It can be very revealing.
Farmers who want to make good profits have to focus on profitability all the time. Many farmers focus on the appearance of their stock, homestead, yards, vehicles and fences, which has just the opposite effect on profit. Profit comes from maximum income with minimum expenditure. There is a sweet spot to deliver good profits and pleasant debt-free farming. It takes some finding.