The recent ban on barley by China came as a blow to all Australian barley growers. The predictable financial blow will be felt in both the long and short term by growers. From a financial management perspective this presents farm managers two different problems to solve.
The long-term impact will be easier to manage because you will have time to plan your options going forward. i.e. if the margin for barley in the 2021-22 season is not strong then you can choose not to plant barley next season. You also have seven months to look for alternatives to replace barley in your rotation.
In the short-term you need to assess how the change in the market will affect:
Your forecast market price.
How this change in price impacts your gross margin?
How this impacts your cashflow and peak debt?
You can use Agrimaster Full Budgets to do this quickly:
1.Copy and rename the existing cropping worksheet set in your current full budget. e.g. Copy “Grain 20-21” and name the copy “Grain 20-21 China Ban”.
2. Open the copied worksheet set (i.e. “Grain 20-21 China Ban”).
3. Alter the three marketing options to see how this affects your:
i. Gross margin.
iii. Peak debt.
4. The three marketing options you have are:
i. How you sell your barley – e.g. pool, non-pool, hedging (cash/contract).
ii. When you sell your barley – e.g. forward sell, cash at harvest, store and sell later.
iii. How much you forecast to sell your barley for.
5. Remember that the costs of each selling option will have a different cost structure, so ensure these costs are added to your new worksheets. E.g.:
i. Pools have the pool cost.
ii. Storage has the infrastructure, handling, and interest cost.
6. Once the worksheets are complete, you will want to know how this affects your budget. In the Change Budget setup area, deselect your existing “Grain 20-21” worksheet and select one of the new China Ban worksheets.
7. Open the budget and review the cashflow and peak debt.
i. How did the changes affect the main trading account in the Account Balances for each months cashflow?
ii. Have you gone over your working capital limit?
iii. Are there other budget changes that may need to be made?
iv. Will you need to contact the bank to discuss possible options?
v. How did the changes affect the total sum for all accounts in the Total of Balances for each months cashflow?
vi. Have you gone over your working capital limit?
vii. Are there other budget changes that may need to be made?
viii. Will you need to contact the bank to discuss possible options?
8. Do this as many times as you need to evaluate the best outcome for your business.
Do not change the original worksheets as you need this as a reliable baseline.
You can create as many copies of a worksheet as you like.
Remember not to add all your copies or original worksheets to the one budget at once or it will show too much income and cost.
Why go to all this effort?
You may not like the answers you get, but by running these scenarios you buy yourself valuable time to plan and review all the options.
A good budget model built-in Agrimaster is much more than a report for the bank to get money. It is a powerful weapon in your business that buys you time and options.
As a farmer you always face managing both production and price risk. A dynamic Agrimaster Full Enterprise Budget will give you a valuable tool to quickly adjust the price, yield and timing to evaluate risks and opportunities in your business. This gives you time to plan and change so you can maximise your return and minimise your financial risk.
To learn how to generate a Full Budget step by step, please follow the links below: