Farming system profitability and impacts of commodity price risk

Abstract

Take home messages
• Large gaps in profitability are possible between the best and worst systems – differences of $92-494/ha per year were found between systems at each site
• Intensity is the major factor driving good/poor economic performance of the farming system - more so than crop choice. Matching intensity to environmental potential seems to be the most important lever to optimise farming system profitability
• Increasing crop intensity increased costs and risks, but potentially higher crop income wasn’t realised over the dry run of seasons and hence has produced lower gross margins than more conservative systems
• Lower crop intensity had lower system gross returns, but because of lower inputs and costs may achieve a more favourable return on investment at lower risk when there are limited planting opportunities. These systems have achieved lower gross margins than the baseline system in all but one comparison
• Increasing legume frequency has the potential to capitalise on favourable legume prices but using long-term prices has rarely exceeded gross margins of baseline systems
• Increasing nutrient supply incurred higher costs and required favourable seasonal conditions to increase grain yields and gross margins – this rarely occurred over the experimental years (excluding Trangie 2016 and Emerald 2017 where significant crop responses were obtained)
• Systems involving crops with higher price variability (e.g. pulses, cotton) had limited downside risk but increased upside opportunities of higher economic returns. Even when comparing recent and long-term grain prices, the relative profitability ranking of systems rarely changed
• Selecting a crop system is a long-term decision with unknown future yield and prices, hence choose systems that maximise system productivity and resilience, rather than responding to current commodity prices.