Farm Performance Forecast

At a national level, average farm cash income for broadacre farms is forecast to decrease 41% to $197,000 per farm in 2023–24 (Figure 1). This decrease is primarily being driven by observed and forecast drier conditions and lower national and global prices of agricultural commodities.

While adverse seasonal conditions and prices are driving large decreases in farm financial performance, this is relative to the record highs of 2021–22 and 2022–23. 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. The grey lines in Figure 1 are the upper and lower bound estimates for farm income and profit reflective of uncertainty in the climate forecast (see Background and Methods section for further detail).

Figure 1. Average farm cash income and farm business profit for broadacre farms

Incomes for cropping farms are forecast to decline by 45% to average around $627,000 nationally in 2023-24 (Table 1). 2021–22 and 2022–23 were two of the best years on record for cropping farm incomes, with favourable climate conditions and commodity prices. Due to drier conditions, production for major winter crops is forecast to fall significantly in 2023–24. Declines in national production of wheat (36%), barley (26%) and oilseeds (38%) are driving reduced crop revenue (see the Agricultural Outlook). However, strong soil moisture to start the season means that crop production is predicted to remain around the long-term average.

Despite a forecast increase in livestock sales, beef and sheep farm incomes are predicted to decrease in 2023–24 with significantly lower livestock prices. Incomes for beef farms are forecast to come down 27% to $132,000 (Table 1) – but remain in line with the long-term average for beef farms, after record incomes in 2020–21 and 2021–22. Although beef cattle sales are forecast to increase in 2023–24, this is more than offset by declining beef prices (see the Outlook for Beef and Veal).

Further declines in sheep and lamb prices are forecast in 2023–24, while wool prices are forecast to remain low in real terms (see the Outlook for Sheep Meat). Low prices are leading to a forecast 38% decrease in sheep farm incomes to $36,000 in 2023–24 (Table 1).

Further information about changes in commodity prices and production and their drivers can be found in ABARES most recent Agricultural Outlook.

Table 1. Average farm cash income, by industry, Australia

Note: Forecasts derived from ABARES farmpredict model and DEWS prototype using ABARES Agricultural Outlook (Sep 2023) and BoM September Seasonal Outlook. A mean forecast is provided along with lower (5th percentile) and upper (95th percentile) bound estimates.

Table 2. Average farm cash income, by state

Note: Forecasts derived from ABARES farmpredict model and DEWS prototype using ABARES Agricultural Outlook (Sep 2023) and BoM September Seasonal Outlook. A mean forecast is provided along with lower (5th percentile) and upper (95th percentile) bound estimates.

Map 1 shows forecast broadacre farm profitability across Australia (relative to a 33-year historical reference period, see Background and Methods for more detail). In Map 2, the effects of climate conditions on broadacre farm profitability are isolated by holding prices constant. The current BoM seasonal outlook suggests a high likelihood of below average rainfall and above average temperatures in coming months. More information on the climate outlook can be found in the seasonal conditions section of ABARES most recent Agricultural Outlook.

Below average farm profits are likely in 2023–24 for parts of southern Victoria, Tasmania, SA and WA in areas affected by both adverse seasonal conditions and declining sheep, lamb, and wool prices (Map 1).

Below average farm profits are also forecast for parts of northern NSW and southern QLD (Map 1), but this is primarily being driven by the climate impact (Map 2) on crop production.

The effect of climate conditions on farm profitability across much of central and north central Australia is forecast to remain favourable in 2023–24 (Map 2). Given the more favourable climate conditions anticipated in the Northern Territory, the effect of climate on farm profitability is expected to be low and farm cash incomes are only forecast to decline 14% compared to 41% at a national level (Table 2), remaining at or above the longer-term average across most of the NT (Map 1).

Detailed regional results can be found in the ABARES Farm Data Portal.

Map 1. 2023–24 farm business profit indicator (farm business profit compared to the longer-term average)

Map 2. 2023–24 farm business drought indicator (isolated impact of climate on farm profitability)

While costs for major farm inputs (such as fertilisers, chemicals and fuel) are forecast to fall in 2023–24, this will be more than offset by reductions in receipts from the sale of all major farm outputs, leading to an overall decrease in farm cash income (Figure 2).

The availability of many major farm inputs was severely impacted by supply chain disruptions during the covid pandemic, which led to sharply higher input prices in 2021–22. Considerably higher fertiliser prices were one of the biggest contributors to higher farm input costs during this period. However, in 2023–24, fertiliser prices are forecast to ease, contributing to a reduction in farm input costs as supply chains stabilise post-covid. Additionally, anticipated drier conditions are projected to lead to reduced use of inputs and consequently lower overall costs.

While total farm costs are forecast to decrease, some input costs will increase, including fodder (due to drier conditions) and interest payments (due to rising interest rates).

Receipts for major crops (wheat, sorghum, barley and oilseeds) are forecast to decrease in 2023–24, primarily due to a decrease in production driven by forecast drier conditions.

After a period of favourable climate conditions, cattle herds have been restocked, and livestock sales are forecast to increase in 2023–24. However, falling sheep and beef prices are forecast to offset an increase in sales and lead to an overall decrease in receipts.

Figure 2. Change in average farm cash income, by costs and receipts, 2022–23 to 2023–24

The forecast fall in average farm cash incomes will affect the ability of some farms to service their debt in 2023-24. Farm debt has increased substantially in recent years as strong incomes and low interest rates improved debt affordability. Most of the increase in debt has been for purchases of land (Figure 3).

Figure 3. Average components of farm debt, broadacre farms, Australia, 2000–01 to 2021–22

Despite the increase in debt, farm equity ratios have increased recently with strong increases in land values, which has helped encourage investment (Figure 4).

Figure 4. Average farm business debt, farm equity and equity ratio, broad acre farms, 2011–12 to 2021–22

Debt serviceability has also been strong but will be challenged by lower farm incomes this year. The average proportion of farm cash income consumed by interest payments – the interest coverage ratio – has been trending down for over a decade with rising farm incomes and lower interest rates. The interest coverage ratio for broadacre farms in 2021–22 hit a record low of 7%, due to high farm cash incomes and low interest rates (Figure 5). In 2022-23 and 2023–24, the proportion of income consumed by interest payments is projected to increase to around 17% and 30% respectively. This would be the highest level seen in over a decade, however the impact will vary significantly across farms.

Figure 5. Average farm interest coverage ratio, broadacre farms, 2011–12 to 2023–24

After 3 years of high incomes many small to medium farms have built up their liquid assets to provide a buffer against short term downturns in income. For example, in 2021-22 small and medium sized broadacre farms were, on average, estimated to hold liquid assets in excess of (in the case of small farms) or almost offsetting (medium farms) their debts (Table 3). Also, many small to medium sized farms are currently debt free – an estimated 67% of small broadacre farms held little or no debt in 2021-22, while 36% of medium sized broadacre farms were also largely debt free.

Table 3. Selected characteristics of broadacre farms in 2021–22, by size group, average per farm

Note: Size groups determined by farm business turnover. Small (less than $200,000 per farm), Medium ($200,000 to $600,000 per farm) and Large (more than $600,000 per farm).
Source: ABARES Australian Agricultural and Grazing Industries Survey

Collectively, small broadacre farms (defined as farms with an annual turnover of less than $200,000) accounted for just 3% of total broadacre sector debt in 2021–22, while representing one-third of the broadacre farm population. Medium sized broadacre farms (the one-third of farms with an annual turnover of between $200,000 and $600,000) accounted for 10% of sector debt. The equity ratio among small and medium-sized broadacre farms was also at historically high levels in 2021–22, averaging 98% and 96% respectively.

In contrast, large broadacre farms (farms with an annual turnover of more than $600,000 per farm in 2021-22) collectively accounted for an around 88% of total broadacre sector debt in that year. The average equity ratio on large broadacre farms (89%) was considerably lower than that of small and medium-sized farms, while large farms held lower levels of liquid assets (when measured as a proportion of their turnover) compared with smaller farms.

However, large farms tend to be more profitable than small and medium sized firms, and their debt servicing burden in 2021–22 (8%) was only marginally higher than that of small and medium sized farms (6.3% and 6.1% respectively). The relatively high leverage rates of large broadacre farms leaves them more exposed to the negative effects of higher interest rates and challenging seasonal factors. Large farms rely on high cash turnover to service debt and they have comparatively low off-farm income and liquid assets. Many have reinvested their recent high incomes back into the farm by buying land or plant and machinery.

More detailed information on farm debt can be found in Trends in Agricultural Lending 2021–22.

Farm survey data

All dollar values in this industry report are reported in real terms, adjusted to 2022–23 values. Adjusting to real terms removes the effect of inflation and allows financial values across different time periods to be compared in like terms. ABARES adjusts for inflation using the consumer price index, supplied by the Australian Bureau of Statistics (Australian Bureau of Statistics, 2023).

The broadacre farm data in this report is drawn from ABARES Australian Agricultural and Grazing Industries Survey (AAGIS). AAGIS covers broadacre farms with an estimated value of agricultural operations (EVAO) greater than $40,000 and includes the following industries (defined by Australian and New Zealand Standard Industrial Classification (ANZSIC).

For detailed historical and forecast farm survey data see: Farm Survey Data

For more information on ABARES farm survey program see: Farm surveys and analysis

Forecasts

Forecasts have been produced using ABARES farmpredict model (Box 2), making use of recent developments undertaken as part of the Drought Early Warning System (DEWS) project (Box 1).

The DEWS project is a collaboration between CSIRO and ABARES being undertaken for the Department of Agriculture Fisheries and Forestry (DAFF), with the goal of developing a drought monitoring and forecasting system to inform the Australian Government. The DEWS project links weather and agricultural data, with a range of scientific and economic models to measure and forecast the effects of climate variability and drought on agricultural outcomes (see Box 1).

While the development of the DEWS is ongoing, initial monthly outputs from the system (including rainfall and temperature forecasts derived from the BoM seasonal outlook, and crop yield and pasture growth forecasts) are now available and have been linked to ABARES’ farmpredict model to derive the forecasts presented here.

The forecasts contained in this note (and ABARES Farm Data Portal) are based on ensemble weather forecasts for 2023-24 as at the beginning of September 2023, with the forecast average (ensemble mean) and the lower and upper range of this forecast ensemble (5th and 95th percentiles) being presented. Farm forecasts are also based on ABARES commodity price forecasts for 2022-23 and 2023-24 from the September Agricultural outlook publication.

A progress report outlining the current DEWS prototype is expected to be released in coming months (for more detail see Box 1).

Box 1. The Drought Early Warning System

The DEWS prototype operates on an 0.05-degree (approximately 5km) grid drawing on BoM historical gridded climate data, BoM seasonal weather forecasts from the ACCESS-S2 model and a range of other spatial and agricultural data scaled to the same 0.05-degree grid.

These historical and forecast climate data are taken as inputs to a range of scientific and economic agricultural models. Given data and assumptions on the types of soil, pasture, agricultural activity and farm businesses prevailing at each grid cell, these models translate climate data into various agricultural outcomes including pasture growth via the AussieGRASS system and the GrassGro model; winter and summer crop yields via APSIM and farm business profits via the farmpredict model.

DEWS indicators are generated across Australia for a defined ‘agricultural zone’ (which excludes areas with no agricultural activity). The DEWS prototype operates on a monthly cycle: all indicators are updated at the beginning of each month given observed weather data to the end of the previous month and the latest BoM weather forecasts.

Figure 6. Overview of the Drought Early Warning System (DEWS) prototype

For more information on the DEWS see: The Drought Early Warning System Project

Box 2. ABARES farmpredict model

ABARES farmpredict is a statistical microsimulation model of Australian broadacre farm businesses based on historical data from ABARES farm survey program. The farmpredict model can simulate physical and financial outcomes for Australian farm businesses given prevailing climate conditions and commodity prices. farmpredict applies machine learning methods to derive predictions—at an individual farm business level— of the production of outputs, the use of inputs and changes in farm stocks conditional on commodity prices, fixed inputs, climate conditions and other farm characteristics. The model then applies accounting rules to derive estimates of revenues, costs, changes in stock holdings and profits in accordance with farm survey definitions. Full technical details of the model are provided in Hughes et al. (2022).

Figure 7. ABARES farmpredict model

For more information on the DEWS see: ABARES farmpredict model