AgriCultivate: Grain swap losses, farm property boom and Labor's ag policies
Many growers took out grain swaps at the end of 2021, when prices were (at the time) at record highs, as a strategy to protect revenue against potentially declining commodity prices. Then Russia invaded Ukraine, and - along with other contributing factors - grain prices continued to soar. Now some growers are having to buy back their swaps at a loss.
Meanwhile, rural farmland prices across Australia are continuing to soar as neighbours take advantage of the ‘once-in-a-generation’ conditions to boost their farm property size. National Australia Bank (NAB) have revealed the median price paid per rural hectare has risen by up to 20% in the past year alone with neighbour-to-neighbour farm buys under 25mil the most active segment of the rural property market at present.
Labor have won the federal election and the policies that will affect agribusinesses in Western Australia focus predominantly on ag skills shortages, live sheep exports and biosecurity. The incoming federal Labor government have stated they will create their own agricultural visa to target ag labour shortages, targeting the Pacific instead of South East Asia, however, farmers are sceptical Labor’s ag visa will fix the crippling worker shortages currently experienced. Industry heavyweights including Esperance grower (and WAFarmers grain sector president) Mic Fels are calling for an emergency taskforce to fast-track skilled immigration.
The new federal Labor government have also pledged to phase out live sheep exports in consultation with the industry and Western Australia, (no timeline provided), and have promised to provide long-term sustainable funding for the nation’s biosecurity system including foot and mouth and lumpy skin. They’ve also vowed to improve protections for small farmers against UCT’s (unfair contract terms).
What does all of this mean for you? Firstly, if you took out grain swaps late last year and have been asked to cash-out the contracts early, the silver lining is that the swaps should hopefully only impact a very small percentage of your crop. Although it’s not an ideal situation for you to be facing at the moment while you’re busy with seeding, having to cop the loss now means you’ll potentially receive a higher price for your grain down the track. Feel free to reach out to me to discuss this further.
Secondly, if you haven't started working with Gavin on your farm succession plan, now is the time to start the conversation as soaring land values, increasing input prices, operations constraints and COVID-related lifestyle choices have made farm planning for future generations more important than ever before.
Finally, if you’re not currently engaged with Smith Shearer as your Accountant, we have an offer that may appeal to you. Do you know what your five-year average is? Are you paying too much tax? Many clients come to us with high income averaging as a result of being in a business structure that doesn’t work for their farming business. What does this mean? You’re paying too much tax! Book our free 5-year averaging assessment now, (completely free and no-obligation). If you know of a friend or neighbour how may benefit from this, please share this newsletter with them.
Growers forced to buy back grain swaps purchased through CBH Group
GROWERS who wanted to capitalise on high commodity prices by taking out grain swaps with CBH Group have been stung by the market continuing to soar as the result of a multitude of global factors, with some farmers having overdrawn on their credit limits.