Attack on Iran puts Australian farmers at risk
Australian farmers look like they are bearing the brunt of the USA’s war with Iran. A chain of basic farm input supplies is going to be threatened. It is not possible for farmers to just delay working up country or sowing crops until the war ends.
Family farms often carry substantial farm loans and many have not needed or engaged
farm loan consultants. Now might be a good time to do so.
The problem with profit
The problem with farming is that if it goes well there is more money to spend on the farm and if it goes badly the bank will step in with a loan. But long term survival depends on profit. So does security. Family holidays depend on it too and there is nothing like getting away to improve operations. Profit is also the only way to repay loans. The problem with profit is that it spoils the fabulous hard working but easy going lifestyle that farming delivers.
Although there was always hard work to be done from sunup to dark, I loved it. The days in my
GBAC Chartered Accountancy office were busy with “the round eternal cashbook and the journal” . But the days with the sheep and cattle were simply perfect, in an exhausting sort of way. Miles of fencing had to be fixed and dam walls were broken by heavy rain. Cattle to be mustered on hilly timbered country or driven across flooded creeks.
The challenge was switching from lifestyle to profit, even for an accountant bank loan consultant.
The difference debt makes
Buying both places meant borrowings. I was my family's
farm loan consultant. On both places I arranged interest-free vendor finances with an upfront payment. I knew I could not afford the bank interest even with some off farm consulting income. Cashflow and profit can be affected by government decisions (foreign or local), seasonal conditions and commodity prices.
I was badly affected by the collapse of the wool reserve price scheme, even though I led a national
Votergram campaign to have the government clear the massive wool stockpile the scheme had created. I was also seriously affected by heavy flooding that wiped out miles of our fencing and one dam wall.
Right now many Australian farmers are affected by all three factors - war, floods and drought, prices. If they are running debt-free the impact is lower. It can be bad but they should be able to hunker down and live through it.
Rising costs
The first reaction to rising costs is to increase sale prices, if possible. But that is a two-edged sword. Increased sale prices may cover increased input cost, or they may result in a loss of sales just as expenses are rising. Farmers pretty much see themselves as price-takers so the ability to raise prices depends on many factors, not least feed and cashflow.
The flow-on effect can be lower profits. That can be okay if the owner does not have high personal costs, like family, children, teens or loan repayments. But after a while even family feels the strain.
Loan repayments are the factor that can least easily ignored. Unlike the family, the bank feels it needs repayments for its own costs. On the other hand, most bankers are making huge profits. One look at big 4 bank CEO salary packages of up to $1 million a month tells us that those lenders do have room to make concessions to their farm clients. Sometimes we farm loan consultants can twist the bank's arms in a way that their farmer clients cannot.
Last year our big 4 banks earned almost $30 billion between them. If tackled carefully and strategically in private negotiations, they can well afford to help their borrowers out.
If you or your
farm loan consultant can convince them that they will make more by giving you a concession than by forcing you to pay up or face receivership, they can certainly afford to nurse you through the rough times with your other creditors.
Wise borrowers will have bank accounts with more than one bank, so that if the relationship does go sour they can more easily move their loan to a new bank.
