Drier conditions combined with lower commodity prices and smaller crops are expected to reduce broadacre farm incomes by 41% on average this financial year, according to the latest Australian agricultural seasonal outlook.
The Australian Bureau of Agricultural Resource Economics and Sciences (Abares) forecasts average cash incomes to fall to $197,000 per broadacre farm in 2023–24, with beef cattle and sheep farms expected to be hit particularly hard.
The forecast warns some farms will find it difficult to repay debt, which has increased over the past few years at the same time as interest rates have climbed.
Recent Abares figures show farm debt has accelerated each year since 2016-2017, primarily for land and working capital, though farm equity remains strong due to rising land prices.
It comes after El Niño climate pattern was declared and livestock markets plummet as farmers sell off stock to reduce herds ahead of an expected dry summer.
But the latest Abares farm performance forecast says the expected income falls are relative to the record highs for farm incomes over the past two years.
“Forecast farm incomes and profits for 2023–24 are still expected to be above those observed during recent drought years at a national average level,” it says.
The forecast covers broadacre farms, which represent 95% of farmland in the country but a little over half of the value of production, because it excludes intensive industries such as dairy, horticulture and poultry.
In 2023-24, below average farm profits are likely for parts of southern Victoria and South Australia, and Western Australia in areas affected by both adverse seasonal conditions and declining sheep, lamb, and wool prices.
In northern New South Wales and southern Queensland, below average farm profits are expected to be primarily driven by the climate’s impact on crop production.
However, central and central-north Australian conditions are forecast to remain more favourable, with expected farm cash incomes only forecast to decline 14% compared with 41% nationally.
Neal Hughes, a senior economist at Abares, said the new forecast combines a farm simulation model with a drought early warning system linked to the Bureau of Meteorology’s seasonal weather forecasts and related crop and pasture growth estimates.
“The commonwealth government relied pretty heavily on data from the BOM but drought is generally a lot more complicated than just rainfall,” he said.
“Some of Aabres’s past research has shown … rainfall can only be weakly correlated with the actual agricultural impacts of drought.”
Hughes said the new forecasting system will help government programs – such as the Farm Household Allowance and the Rural Financial Counselling Service – to plan for the needs of communities.
But he said it was important to recognise that the commonwealth would not be returning to the old system where drought maps defined which farms were in “exceptional circumstances” and government assistance was paid according to certain criteria.
“It’s important to emphasise that it’s not about returning to some kind of exceptional circumstances type trigger,” he said.
“But the government has a lot of programs that are related to drought that could benefit from drought information.
“If we can forecast where drought is happening, and what might happen in the future, potentially that could have helped them allocate resources.”
