Episode 49 - Nigel Kerin on the business of climate (part-1)

In part 1, we spoke about the following:

• Weather and trading conditions at Kerin Ag.
• The cost of doing nothing. Refer to this article here.
• How Nigel tried low-input Farming back in the 90s.
• And how they were literally forced into low-input Farming in the 90s.
• How you have to replenish what you take out when it comes to production.
• How is it that when we want something to work, we will pull out all stops to justify it to ourselves and others?
• Nigel gave us some of his learning from a recent trip to New Zealand.
• He expanded on what he learnt at the recent Wagyu conference.
• We spoke about how conferences need to get better and how they can.
• We spoke about Farm inflation.
• And about some of the surprises that came from working out his Farm inflation rate.

In part 2, we spoke about the following:

• About where the herd and flock size are at
• And the opportunities around that
• How climate is determining how many Cattle or Sheep we breed.
• How they are utilising finance to create a new enterprise.
• We spoke about the importance of measuring.
• And what the metrics behind a Grass budget mean to his business.
• Nigel explained the process they follow when making big decisions about what they do.
• One of our subscribers asked for 3 bits of advice to young people.
• He also asked about the difference between good and great in business and in life.
• Another subscriber asked him why he started a Ram stud, and it was a great answer. 
• He was also asked if it's either business consolidation or growth. It's an infinite game for them; it has no end.
• We spoke about what is frustrating farmers right now.

It was a great chat, and I thoroughly recommend you take a listen to both parts 1 and 2. You can download the MP3 version here.

Transcript

SPEAKER_03 0:04

Hi everyone, Dwayne Duxon here from the Farmers Club Private Podcast. We do these podcasts in conjunction with our sister business farm tender. Go to farmtender.com.au and sign up from there. We did this podcast with Nigel Karen in two parts. Check out the show notes as we've dot pointed all the main topics that we covered. And there's so much more. If you're an agricultural business, a farming business, or a non-agricultural business, there's plenty in this for everyone. I hope you enjoy. End a message. Welcome along, Nigel. Morning Duane, how are you? Going well, thanks. We'll get into it because we've got a bit to get through. Just give us a bit of a rundown on the season at Cairnag. Explain exactly where you are and what it's been like, say the last six months.

SPEAKER_04 1:18

Drought broke in March 25 and a half years where it didn't stop raining. And then pretty much the rain last rainfall event we had of any real significance was the 10th of September. So for the for the financial year, so we're 10 months into the financial year, we've had um 32% of our rainfall, average rainfall. But it interestingly, I worked out our stocking rate this morning. We've actually run at 83% of our stocking rate for this financial year, the 10 months. So that that is a very good number to see because straight away it gives you an idea of what there should be as far as cash flow. And that stocking rate all happened in the cool months coming out of like last financial year, June, July, August, September, October, November. So we put our foot down in that period, and that's where we picked up all the stocking rate. Uh was when we did have uh did have reasonable moisture, but pretty much we've been running on hand-to-mouth moisture now for uh well over 12 months.

SPEAKER_03 2:29

Yeah, right. So those periods they would have been exemplary, you wouldn't have seen you know, feed like that before, would you? And all the floors.

SPEAKER_04 2:39

We didn't miss a season, that's just unheard of. What was interesting went up to the Waygear conference last week. Um so went up through Coonabarum and up to Gundawindi, uh, to Woomba, then to Brisbane, and we come home down the New England Highway, down through Warwick, Stamthorpe, Gyra, Glen Innes, Armadale, Temworth. You wouldn't fear to go in or on any either of the roads. Um, and that was a total of 2,000 odd kilometres we did up and back. So very, very, very dry when you get north of Dubot all the way to Brisbane and all the way back down the New England Highway.

SPEAKER_03 3:17

So will you have to you know put something in containment?

SPEAKER_04 3:24

Uh we've got enough feed on hand for till the end of May in our grass bank. Uh the REM's only just come out of the ewes this week. We'll give them three weeks, uh shear them, and then if no rain, all the breeding ewes will go into containment. And the Wagyu seedstock business cows, reset cows, wage cows will just um stay on grass.

SPEAKER_03 3:51

Yeah, good one. Now, there was a good article in Beef Central the other day about the the cost of doing nothing which you endorsed. What did you like about that article?

SPEAKER_04 4:05

Yeah, it'd be it'd be a good idea if you could um when you put this up actually put a reference to that article because it won't my comments in anything till you read it. For me, it just resonated what actually happened in our business. It's it was resonated really well with me. And if you live in a high rainfall area on the east coast of Australia, or doesn't matter where really stocking rate drives profit, stocking rate re drives return on asset managed to a certain degree, and we had a go at low input farming. I think it's one of your dot points later on in the talk. We had a go at low input farming in the 90s, and yeah, we'll talk about that as we go through, but why it resonated with me was if you choose to do nothing, you're in a spiral that only has one way and that's down.

SPEAKER_02 5:13

Yeah.

SPEAKER_04 5:14

And I defy anyone to even contemplate having a positive return on asset in a high rainfall zone if they've cut the absolute guts out of their inputs, which is uh soil health, soil fertility, that's pretty much it, because all soil health and fertility does is drive the water use efficiency of rainfall.

SPEAKER_01 5:40

Yep.

SPEAKER_04 5:41

So all all the cocky's now whinging about a lack of rain. Well, for us, in the climate we now have, we're pretty much still getting our average rainfall over 10 years, but the wets are getting longer and the dries are getting longer. So when it's on, it's on, and I think the use of um adjusting soil fertility when you go into those wet periods is where you really need to put your focus because that's what'll drive the cash flow that's needed to get everything to balance up with the years that aren't so good as far as rainfall.

SPEAKER_03 6:22

So is it about um improved pastures or perennial pastures and you know returning the nutrients that you take out? Is that what it's about for you?

SPEAKER_04 6:32

Yeah, it was all about you removing it. You're taking basically nutrition out of the bank, you need to put something back in the bank, or you're gonna have nothing in your nutrition bank, in your soil health bank. That's what it was about. And what we learned is if you fall behind in that, it'll cost you a bloody fortune. You might save some money, but it's false savings, is what I'm saying. It will, it's like compounding interest, it will eventually get you if you are in ahead of it.

SPEAKER_03 7:04

So you mentioned we just talked about that you did a bit of a trial or you wanted to go down a particular farming way, the low input farming way back in the 90s. Um so just tell us what you learned from that, or or what at what point did you say this is not working?

SPEAKER_04 7:21

I think for those of the younger generation that are listening to this, when you think of 1990, that's 36 years ago.

SPEAKER_00 7:30

Yeah.

SPEAKER_04 7:31

And if you're only 20, 30 year old, you'd be wondering what the hell we're talking about. You were obviously alive in that period. You were faced with a lot of things, and the biggest the biggest negative we had then was incredibly low prices on every commodity that you took, whether it be grain, all the grains. Um, you know, to sell wheat off a header, uh, like shop and sprung wheat, I remember$63,$73. You know, APW wheat was$120, H2 type wheat, you might have got to$140.

SPEAKER_02 8:09

Yep.

SPEAKER_04 8:10

And cattle prices were shocking. Um, lamb and mutton was worth nothing, and interest rates were at an all-time high. Um and what does an all-time high mean? 19, 20, 21%.

SPEAKER_02 8:28

Yep.

SPEAKER_04 8:29

Uh so that's the background you've got to have of about why we were sort of I I don't want to use the word forced, but we were. We had we we had to reinvent the wheel. We actually didn't reinvent it, we actually just I don't know. We were forced to run a lean business because we were in a lean economy. And the one thing we learned out of that, basically, the first thing and the easiest thing to cut out is your fertilizer inputs. And there's a lot of other inputs you cut out as well. But um for us, we we did cut back on single super. Um the use of nitrogen w was 100% gone.

SPEAKER_03 9:20

Yep.

SPEAKER_04 9:21

Because you simply could not afford this stuff.

SPEAKER_03 9:23

No, that's right, I remember.

SPEAKER_04 9:25

You don't even contemplate putting it in your budgets because it's contrary to what I just said a minute ago. What I said was you want that soil fertility in there in these periods when you're in uh when we get these big breaks when we go into these wet seasons. Yeah, it didn't we actually had a reasonably run of uh seasons then. Didn't matter, the seasons didn't influence our actual turnover in dollars because everything was worth nothing. So it was just a big cost-cutting um thing that went through the 90s, and there wasn't too much business growth in the 90s, I can tell you, till we got to the end of the 90s. But the when we the first thing we noticed after about five years was stocking rates started to plummet.

SPEAKER_02 10:14

Yep.

SPEAKER_04 10:16

And if you think back then, our country now that might be worth three and a half, four thousand dollars an acre, you know, back then you were only talking of four hundred four hundred and fifty dollars an acre.

SPEAKER_00 10:32

Exactly.

SPEAKER_04 10:32

So to get positive return on asset on country worth you know four hundred and fifty bucks isn't that hard. But we still couldn't do it back then. So it just tells you like our cost structures are way cheaper than what they are now. But the problem was every product we touched, grains and animal production systems, were worth nothing. And I don't know why that really was. My memory's not that good, but the what came out of it was when we got out of that period of I'd say what you might call a commodities priced recession, and then the the price of commodities started to increase, we'd lost the engine that drove our grazing business, and that was soil fertility. So, and that was that certainly the first thing that popped up, and it popped up in about, as I said, in U5, and it gradually got worse by the ninth year, was just stocking rate fell away to nothing. And that was because we weren't feeding feeding the pastures, and it rapidly returned back to a native system. And the native system is one that's related to lower stocking rates, but as price of your asset base increases, it then created uh the hangover of it was virtually impossible to even um achieve a return positive return on assets, so even three or four percent. So um there was a fair bit of catch-up to do there, and yeah, we went about doing that as soon as we had a change in those commodity prices, but that lull lasted 10 years. Um and yeah, we might have had low cost structure, but we also had super low income. So I think that explains that question.

SPEAKER_03 12:32

Yeah, and do you reckon did it take a long time to we when you did the cut off the line, so we're not doing it this way, things have picked up a little bit on the price side. Did it take a long time to recover or get back to where you wanted to go? Was it were you, you know, did you were you a long way behind at that point, like like we all perhaps are to build your phosphorus and sulfur reserves back up. Yep.

SPEAKER_04 12:54

And you can't do it all in one. Well, you can you can do it if you've got an open checkbook, but not many people have that. To build your phosphorus levels back up. You know, it was a five-year slog to get that back up to where you need them to be. But I think now, when I think about it, do you have the choice now not to get them back up as quick as you can? Because you've got to dig yourself out of the hole that you put yourself in. So I think if we were forced with that again, you'd actually have to do the economics of it about how quick you rebuild soil health, uh, pH levels, etc., in your soil, and what will be the cost of doing nothing? So you do the cost of actually doing it and the cost of doing nothing, and I need to answer before I already do it. The question will be can you finance it? Yep. Either from cash or borrowings.

SPEAKER_03 13:57

So are you high input um high output um farming now, or are you just returning what you take away? So you know you take away a certain amount, you've got to put it back in.

SPEAKER_04 14:12

Um yeah, that was a good question. I thought about and I jotted down a few dot points. Yep. We are high-input farm when it's when it's on.

SPEAKER_02 14:23

Yes.

SPEAKER_04 14:24

When our moisture probes are telling us what we've got uh such and such a profile in our moisture. When we're coming out of the hot months of summer into the cooler months, and and we know what moisture profile we got, that's when we'll look at strategic use of fertilizer and lime and everything else to start revving that engine up. But it also has it has lime is all the time, it really hasn't had that big a price change in 10-15 years. It's still a very cheap commodity as far as I'm concerned for what it does. Um the use of strategic use of fertilizer happens, it's just happened. We've probably seen the biggest result of strategic use of fertilizer with in the cooler months when your water use efficiency is so much better. That's really happened to us at the end of last financial year and through this financial year up to September. And that was governed by our commodity prices were at all-time record highs, sheep, cattle, lamb, wool. And we knew if we drove stocking rate in that time, the easiest way to drive it and double it and even triple it was the use of fertilizer. So this uh pretty much this financial year and part of the last financial year, we had our biggest spend ever on fertilizer, but we also had our biggest turnover and our highest stocking rates, I think, we've ever achieved with the least amount of rain, and that's the really important thing. We've only so for the 10 months of this financial year, we've received 32% of our average rainfall, but we've got the higher stocking rate, 83% stocking rate in that period, but we've had bugger all rain. But on the balance sheet, we've had a very good year with um actually turning rainfall into money because that fertilizer drove production in those cooler months when we had subsoil moisture, but you know, it never the subsoil moisture was there, but we never got it down into a profile. So we made use of what we had. Um yeah, it's very much your inputs now are very much tied to climate.

SPEAKER_02 16:58

Yep.

SPEAKER_04 16:58

When climate's quite kind to you as far as rainfall, that's when you jump in. And when it's not, you're sitting on your hands doing absolutely bugger all.

SPEAKER_03 17:07

So when when you say you got feed till May, will you take a cautious approach on inputs this year, or is it just a case of returning, you know, like we said before, returning what you took out? You've got to do it anyway.

SPEAKER_04 17:19

Uh no, it's a very simple answer. It's not cautious. Our soil moisture probes have been sitting on zero.

SPEAKER_02 17:28

Yep.

SPEAKER_04 17:29

Pretty much all of well, I think since say the 14th of October, they've basically been sitting on zero.

SPEAKER_02 17:39

Yep.

SPEAKER_04 17:39

The little tiny bits of rain we're getting are only going into the top hundred, 125 mils of soil. So in points of fertilizer, we stood out our liming program, but not as much as I wanted to do, but we've got no third at all because there will be no return from it, no utilization because there's no bloody rain.

SPEAKER_03 17:59

Yeah.

SPEAKER_04 18:00

It's a simple one, though.

SPEAKER_03 18:03

Um, how is it that when we want like getting back to the low input thing? And this can be related to the high input thing as well, but getting back to um the low input thing, when we want something, when we're determined to make something work, why do we try and pull out all stops to justify it to ourselves and others? And when we're younger, we had a probably had a bigger ego and things like that. We, you know, this is how we do it, and we're gonna make it make sure we're determined that you know it works.

SPEAKER_04 18:31

Yeah, that's it is something that you really become passionate about when you're younger. Because you think that this could be the silver bullet we've been looking for, whatever it is. And where your focus goes is where your energy flows.

SPEAKER_02 18:52

Yeah.

SPEAKER_04 18:52

And I'm talking physical energy, mental energy, it can be financial energy as well. But you don't try and make change in a business unless you're fully behind it, fully mentally behind it, and you mentally want this to work. And you know, we got behind that in the 90s and with every effort that we could to make it work, and the the failure of it was actually measured in profit. Our environment went backwards, our um plant perennial plant population went backwards, the bio to the plant species went backwards, your balance sheet went backwards, but my god, there was a hell of hangover that come from it. And you know, Australia as it was in a native state wasn't that productive. No, and that's fine, leaving it in that native state if you want to adjust human population to that native state. Because we can't feed everyone in the world now, as it was when m man first started walking around on the face of the earth. So unless you're going to do a bit of a de-stock on the humans, you sort of can't ignore um industrial agriculture, I guess.

SPEAKER_03 20:33

So, do you look back at those as wasted years or great learnings? Or you you your hand was forced, really, wasn't it, like the rest of us?

SPEAKER_04 20:43

Unfortunately, unfortunately, you didn't have much choice in that one.

SPEAKER_00 20:48

No.

SPEAKER_04 20:49

Um it was all commodities and interest rate. And when you and you couldn't buy your way out of it because it cost too much to buy the money.

SPEAKER_03 21:01

True. Good point.

SPEAKER_04 21:03

So when you got cash flow and you look at borrowing money at 19 and 20 percent, wish you luck, you just sit there in a c it bloody near in a induced coma your business. And sometimes sometimes the only way to make money is to save it.

SPEAKER_02 21:24

Yeah.

SPEAKER_04 21:24

In other words, don't spend it. And and you know, in my time that's probably happened twice. Um but Jesus, it was I think it was hard on younger well, I was young then. Yeah, it was hard on younger people then because you were just basically in an induced coma of your business, sitting there doing bugger all. Um because yeah, it was a state, it was existence thinking back then, and and you like to go, oh, well, what about abundance thinking? Well, it's hard to make abundance when your commodities are You can't change the commodity prices. And you had the added added um G clamp on your head of high interest rate squeezing the 11 day lights out of you if you tried to do anything. So I guess, yeah. I I don't know. I'd be quite happy if we never ever seen a another coach like the 90s again, which lasted for 10 years.

SPEAKER_03 22:26

Yeah, they're interesting. I remember we had one battery for four implements, farming implements, and we just had to swap the battery around. Things were that tight. So and and it's um yeah, I I agree. We don't want to go back there and I don't think we will. But um you're a big one on getting off farm. So and you've been to New Zealand in the last month and to the Wagyu conference, so you're out there learning off others and and just observing. What do you what do you think's front of mind with farmers right now?

SPEAKER_04 22:58

The trip over to New Zealand is our business actually sponsors the Xander MacDonald Award. So it's an award for people under the age of 35 that are making a difference in agriculture, be it New Zealand and Australia. So one year the conference is held in New Zealand, the next year back in Australia. Um, yeah, good question. The one thing I noticed, especially with the New Zealand blacks, because we did some farm visits while we're over there and just talking to them, they're all seeking control. They're doing everything they can to control everything in their business, and they're putting measures in place to make sure that happens. And yeah, that was the big thing. They never actually said it. But when you'd um when you you'd if you sat back and careful and intently listened to the conversation, the what they were screaming for was control in their business. And why wouldn't you want to seek control in your business? Because can if you're in control of everything, it removes anxiety. And if you can remove anxiety out of the business, the chances of abundance coming in there have a higher chance of success. And what sort of well, control over climate was the big one, I think. Yeah, climate. And they're not fighting it, they're just putting measures in place that control the cash flow that comes out of a highly variable climate. And that was especially in the dairy industry.

SPEAKER_03 24:47

Right. Um, and what about the Wagyu conference? What did you take away from that? You're a you've obviously gone for the last four or five um events. Is that uh like it's we've here keep hearing it's a great event. I should go.

SPEAKER_04 25:01

I yeah, should go, but I I just I'll go back to the Xander McDonald Award, the few things I picked up out of that. One of the really cool things they did is I think it was about past ten in the morning, um uh one of the board members had a fire-side chat chat up on the stage with Don McDonald from uh McDonald Holdings, who's uh Xander McDonald's dad. Xander passed away a few years ago. And I'm just guessing his age would be 80, 84, somewhere there. And he talked about from school days to present day and the changes that have happened. So they're right up, um, they're cattle producers at scale up in northern Queensland. And one of the things that Don McDonald said that just hit me like a bloody tommy hawk to the head. Uh, when when they finished doing their fireside chat, which was an absolute cracking presentation, yeah. Um, one of the key uh one of the lady Kiwi ladies in the audience said, What's the biggest mistake you've ever made? And Don didn't answer it for about 10 seconds. He thought really deeply about the answer.

SPEAKER_02 26:21

Yep.

SPEAKER_04 26:22

And he said, Good question, I'm glad you ask. And I hope from my answer, I can save your business as a lot of um uncomfortableness as well. He said, Every time I've tried to run away from drought, it's followed me. So every time we've made the decision to send breeding animals on adjustment, the drought followed us to where the breeding animals were. So he said, our business is now a sell business when we're dry. And with our younger animals, now we've got uh feedlot facilities that we can use to lessen stocking rate. But why it resonated with me is I'm exactly the same. Every time we've tried to run away from drought at home, it's it's gone and chased us to where we're going on adjustment to. And I I'm always a seller as well. Um, and I don't have any any um issues now of destocking trade animals, although them all have a big bite out of the breeding animals as well, and then we basically um go back into containment then with probably only about 60% of the breeding animals that we started with, and on we've battle tested that over a three-year drought and through the millennial period as well, and and that seems to work for our business. Um, so when you go back to the key we're talking about control, control over climate.

SPEAKER_02 28:01

Yep.

SPEAKER_04 28:02

I think one of the one-liners I also took out of um out of the Xander was pressure is privileged privilege.

SPEAKER_00 28:12

Yes.

SPEAKER_04 28:13

And it was one of the former winners from Australia was talking about how having pressure put on you by someone that cares about your growth, uh, your growth mentally and physically and in the business life is an absolute privilege. And he said younger people need to acknowledge when they're put under pressure, it's a privilege to have someone who cares enough to put you under pressure to grow you as a person, and that was a like one of the better ones that I took out of it. Um, so going to the the Wagyu conference, yep. Um they always put on a cracker, yeah, and there was so many take homes, but the positivity, but once again, this one didn't well, he was actually one of the speakers at the conference, but this was a private conversation. Um this bloke was actually a seed stock breeder, and he jumped on the phone while he was driving to Brisbane and rang up his clients that he sells bulls to, yep, and mates that live in the New England, so yeah, this is up in the New England of northern New South Wales. Yes, and he added up all the cows that had been sold in the previous six weeks. There were 22,000 Angus cows had left that area and gone processes in the six weeks, and he said that absolutely horrified him because he said everyone's talking about a herd rebuild, but he said they don't actually know what's actually happening in the last three months on the east coast of Australia with regards to how big this D stock has actually gone. Um and the other thing about the Wagyu conference is and it very much matches what's happening in the sheep industry as well, yes, in stock breeding businesses. Technology is just having such an impact on how we breed animals these days and how we make them more efficient for land use, competitive land use up against grains and irrigation and all that. And it's not that big a cost that goes into seed stock breeding using genomics and breeding values and all that, and it's just from where I went to with the EBVs there were in the wagyu industry five years ago to where we are now, you just cannot believe how quick they have changed that animal, and I don't think they've even scratched the surface yet, and it's very much the same in the merino game. Um I really think in the seed stock breeding businesses now, yes, you're either a leader in what you do or you're gonna be a bleeder. And bleeding means you're just unable to keep up with everything that's going on, and you're not gonna be at scale in a seed stock producing business. And if you're having trouble with adopting the technology that's happening in the animal breeding world, then it'd probably be a good time to make your mind up to get out now because the way it's driving return, as in dollars and cents, it's it's completely gone into uh an era that we haven't seen before, and especially in the way you when we look at growth, milk um and address the things that they struggle with, but still keeping marbling, fineness of marbling, and eye muscle size and all that. So, yeah, tech technology is really at the forefront of any seed stock breeding business these days, if you choose to adopt it, and if you don't, I wish you luck.

SPEAKER_03 32:32

Because you've got to be very passionate about that sort of thing in the in the seed stock game. And and well, I'm probably we're probably seeing, you know, as it gets passed down through the generations, some less passionate people, and if they're not, you know, if they're not passionate about it and want to use that technology, well, they're gonna get left behind. So you can see the seed stock industry for all livestock going, you know, to a you know, to a lesser few.

SPEAKER_04 33:03

Yeah, and and I think it'll be the ones the the businesses that have the turnover to invest back into the business, yes, that have a and that have adapted the technology are gonna be the ones that are the leaders in what they do. And that it's all breeds of animals. And I think if you look at the poultry industry, the pig industry now, the dairy industry now, that adopted technology 30 odd years ago, look at the efficiency in poultry and um pigs and the dairy industry now compared to even 10 years ago. The grass model of sh growing sheep and cattle is only just starting to catch up to the intense, intensified animal production systems of pork, chicken, and dairy. And if you look at what they're doing, they're just making these animals more productive run on grass. Um, that is the intent of the technology at the moment.

SPEAKER_03 34:19

And like we spoke the other day, and you talked about the Wagri Wagyu conference, and you said, you know, they can probably double up with a couple of the really good speakers and things like that. What do you think conferences need to do better in this day and age?

SPEAKER_04 34:36

And this is every conference I go to, you've got if it's a one-day conference, you might have six or seven speakers. You'll always have three speakers that are absolute shit.

SPEAKER_02 34:48

Yep.

SPEAKER_04 34:49

And the how you govern that is watch people pull their phones out and start fingering their phones, going through emails, reading emails. And then you've got three or four brilliant speakers. At conferences, they need to run their brilliant speakers in the morning and the afternoon with two different subjects, because that you watch the attention of farmers, nothing grabs the attention of farmers in even in a big crowd of 920-odd people, like at the WaiGu conference, like farmers teaching farmers. When you get farmers teaching farmers and talking about their experience and what they've done to grow their business, or how they've uh how they've pulled themselves out of um difficulty and hard, tight seasons, and what they've done in the brilliant seasons, you watch every person leaning forward in their chair get taken in by that address by that particular speaker. I think anything to do with any government should be banned from a farmers' conference. You'd basically get about 95% of people fingering their phones when you get someone from a government talking. And for God's sake, test all of woke speakers. Yeah, do a bit of homework on your speakers, and as soon as you get the hint or a smell of that woke speaker, walling on about something that isn't front of mind for the people that are in the crowd. So if you smell a bit of wokeness in a speaker and you're organizing a conference, cull them off your list because you're better off with a heap of quality than you are with a heap of speakers, quality speakers. And I think no matter what conference you're running, work out what's front of mind and of major concern in the farming industry right now, and have at least two or three of your speakers addressing what's front of mind to the growers right now. Because they'll always, and I think one of the prerequisites for a really good speaker is they are coming to present to a crowd, and their job is to give people tools to put in their toolbox and take home and use the next day at zero cost.

SPEAKER_02 37:08

Yep.

SPEAKER_04 37:09

And the great speakers that I write the most notes down, all they did was put tools in my toolbox at zero cost that I could take home and use the next day. So tools in toolbox and addressing what's front of mind a concern or a it can also be the opposite to a concern. You might something that's just popped up as a booming industry. Let's talk about that and where where we think it fits into the future. So, yeah, I so many conferences you go to where you know 30% of your speakers are never like a nobodies. There is no message there to be delivered in that crowd, especially if they're a government department. Um and the ones that get the biggest and best feedback are without doubt farmers teaching farmers.

SPEAKER_03 38:05

And the sponsors as well, like even their their time to sell their products just sends everyone to sleep too. And I agree, agree about the wokeness side of things. And when I go and get a conference to go to, I'll go through the speakers and and their and their subjects are going to talk about. So and I'll go on the back of that. And as you said, if you can double them up, you know, the good ones, and you got it, and it's a a skill to pick the good ones, um, yeah, you'll probably have a good conference, but you if you haven't got those, you won't.

SPEAKER_04 38:37

Yeah, and the good ones are worth paying for.

SPEAKER_02 38:40

Yes.

SPEAKER_04 38:41

And my yeah, so yeah, that's what I that's basically every conference you go to, that conversation we just had.

SPEAKER_03 38:49

Yep. No, good good points there. Um, I heard you on the Humans of Agriculture podcast the other day, and you you mentioned about farm inflation, and Ken Sully talks about this, and we we spoke to him about it in the podcast we did with him. What did you discover there?

SPEAKER_04 39:08

Uh it wasn't a very nice discovery, I can tell you. I I knew I knew there was something chewing a hole in a bank account. It was a bit like having we uh weevils in uh barley silo. You could, you know, you had a few indicators. There was a lot of weevils on the outside climbing up that silo, but you had no idea what was going on inside. Um so I sat down and worked out our rate of inflation for our farming business post-COVID.

SPEAKER_02 39:38

Yep.

SPEAKER_04 39:39

And I just I'll just put a few um a few covenants in there. I didn't take into consideration any rises in fuel or fertilizer in this calculation, and in this calculation I didn't have any um any machinery replacement costs either, because most of our plant was renewed during that COVID period, and pretty much it's all paid off at the moment. So I put no machinery replacements in this rate of inflation either. So it was basically the direct cost associated with running a sheep enterprise, a cattle enterprise, uh uh both seed stock businesses, um, a cattle trading enterprise. And then I looked at the inescapable overheads. So you've got your utilities in there, wages, you know, your interest is in there to a certain degree, and then added up all those costs divided by the four years that we've had post-COVID, and scratched my head at the figure. And our rate of inflation, if you look at Australia at the moment, I think it's 3.5 or inflation rate. Oh, that's all right. But ours was actually 7.8%. So if you have a million dollars each year of direct costs, and remember I've dropped increase in FERT out, I've left our FERT prices and diesel and unladder prices the way they were. I've got no increase in the value of machinery replacing that.

SPEAKER_02 41:22

Yep.

SPEAKER_04 41:24

So if I would have put the value of like even a new high lux in there, what it costs now to what it did four or five years ago, and and machinery replacement, it would be a lot ugly uglier than what it is. So if for every million dollars of those costs, your inflation costs you up$78,000 a year. And the way I look at it, over 10 years, our farm has to find$780,000 extra to what we're used to, and that rate of inflation, if I do that in 12 months' time, it will not be 7.8%. No, it's up in the tens because every time I buy something for the farm now, I'm just horrified at what it costs. So it's what does that mean in your business? Yeah, actually, then, and this is where the importance of, if you're in the grazing business, the importance of selling grass to the highest bidder comes in. And it's we're gonna have to get a whole lot better at how we look at what we do on our farm just to keep up to the rate of inflation. And that applies to whether you're a cotton grower or a grains grower, it's all of us, and guess what? It's in all the town and city-based businesses as well.

SPEAKER_02 42:57

Exactly.

SPEAKER_04 42:58

So so we're just gonna have to get better at knowing our numbers and knowing how to. Which is a stocking rate to carrying capacity. And one of the things I know to be true is profit follows pasture.

SPEAKER_02 43:40

Yep.

SPEAKER_04 43:44

And when you've got everything coming and it's well fed with soil health, etc., that's and your stocking rate, you're pushing it while it's good, that's where the low hanging fruit is. It's uh it's realizing that if I'm gonna keep up with. Everything that's happening with regards to inflation, I can't run our farm the way it's always been run. I have to do something that's different. And the way I look at it, you should be when it's average and you like we govern a lot of this about our soil profile moisture with soil probes. How much pretty much how much moisture we've got in that soil as a usable um millimeters of rainfall determines so much of how we make decisions on our grazing business. And it also determines so has a lot to do with how we budget out the inputs at a given time. And especially if they're coming into the cooler months when we grow all our grass. So yeah, that that inflation one. I knew it was as as I said, it was a bit like it's a bit like um weevils in a solar barley, you don't realise how bad it is till you stick the auger in it and water it out. Well, for me, that's what it was like. And it's front of mind now with everything we do, and even enterprise choice. Are we have we got any enterprises, or is there anything we do that has a high rate of inflation attached to it? And that that's that's front of mind when we're thinking about what we're up to. So that was the learnings that come out of that one.

SPEAKER_03 45:32

Did I heard the other day that someone said, and I can't remember who, that they said that 80% of your income in is made in 20% of the years. Do you subscribe to that one?

SPEAKER_04 45:45

I'd say 80% of your income comes from utilisation of moisture and having a few cheat sheets to help you, which comes from strategic use in the grazing business, I guess, and applies in the grain growing as well. It comes through the strategic use of fertilizer when you can drive that particular enterprise in that year. And there's no better, and what here's the funny thing about it climate is now the driver of that. Last year, all the Victorians were selling, and and central west New South Wales and northern New South Wales and southern Queensland were buying.

SPEAKER_02 46:33

Yep.

SPEAKER_04 46:35

Now all that area is selling, and the co and the Victorians and Victor uh South Australians are buying. And last year we had a Ford contracted price of a dollar 20 cents a kilo more than what our average buy price was. When that's when you drop your head down and go like buggery.

SPEAKER_02 46:59

Yep.

SPEAKER_04 47:00

And and finance, you know, stocking rate is hooked to finance now. I don't think if you're in a breeding, a breeding system 100% now, you can adjust that stocking rate quick enough. And if you're if you're a sheep producer in a breeding sheep operation, it's not that advisable to be trading sheep because you run the risk of virulent foot rot. So it's just something you want to stay right away from. If you're running a breeding operation at scale, if you've got excess grass, you're probably better off looking at the cattle at game. Rather than run the risk of virulent foot rot.

SPEAKER_03 47:48

The in the inflation calculation you did, um, you know, ma imagine if you had a lot of machinery you're still paying for and you're paying for what diesel is today and fertilizer is today, the number would be scary. Was it a hard calculation to come up with? And how do you recommend people you know sit down and do that?

SPEAKER_04 48:09

Oh, it's quite easy if you got good books.

SPEAKER_02 48:12

Yeah.

SPEAKER_04 48:12

It it took um three hours, and all you did was went through the summary of your budgets that you'd finished in previous years and just wrote down all those direct costs for each enterprise. Um and we did that, I did that for four years.

SPEAKER_02 48:30

Yep.

SPEAKER_04 48:31

Add the whole lot together, divided by four, there's your average, yep, and then looked at the increase that's happened over time in that four years. And if you look at the cost of what it's costing us to run a B double of um animals in a crate uh transport now, which I didn't put into that calculation, like it it's pretty bloody scary what's going on now with our freight costs. And what I can't get over with all this BS about fuel, yeah. The price of diesel in orange fell a dollar over a litre over eight days. Like there's some incredible dishonesty going on in this fuel game at the It's shocking. Oh a very there's a lot of people getting making a lot of money out of it. I don't know how you govern that, but something's very dishonest going on in this fuel game in Australia.

SPEAKER_03 49:36

Hmm. Yes, couldn't agree more on lots of other things as well, which we won't have time to discuss. Um, out of the inflation calculation, did you learn anything about your cost structure or that you probably wouldn't have known otherwise? Was there anything in there that took you by surprise?

SPEAKER_04 49:54

Yeah. No, the big thing I've wrote when it's on, it's on.

unknown 49:58

Yeah.

SPEAKER_04 49:58

And that season goes with you and the markets go with you, and the and the markets open up massively between your buy and your sell. Yep, you put your foot down and you go like buggery. And I that is the secret to harnessing a highly variable climate, I think now. And you've got to have finance to do that, opium, other people's money.

SPEAKER_02 50:28

Yep.

SPEAKER_04 50:29

And don't be frightened through strategic use of fertilizer to turn a certain amount of rainfall, which would only grow such and such a grass, the use of fertilizer, you you know, you can grow four times as much grass, five times as much. And so what we've done with our grazing crops, we've worked out what it costs us to grow a kilo of dry matter in a grazing crop and what the return is. And then we did the same with our perennial pastures. What does it cost us to grow and maintain a uh a kilo of dry matter of in our pastures and what the return is? And for our business, one of the things we have to do is get out of grazing crops as quick as we can. Because, and because they are so expensive to grow, even though we run a lot of animals, they are so expensive to grow compared to our uh perennial pastures, and it's the labour associated with it, machinery costs, chemical costs, etc. etc. etc. We can make our grazing business more efficient from getting it back into perennials as quick as we can. One of the issues with that is when we buy a farm, usually it's covered in every noxious weed you can think of, and it takes us at least two or three years of just growing grazing oats and summer sprays controlling um our biggest enemies are blue heliotrope.

SPEAKER_02 52:08

Yep.

SPEAKER_04 52:08

Nearly every farm we buy has got it on it, and a lot of other noxious weeds, and the cheapest way to do that is to go into fruit two to three years of grazing crops um where we manage those weeds and get them under control so we can go back into a perennial pasture that'll be there for 15-20 odd years.

SPEAKER_02 52:31

Yep.

SPEAKER_04 52:32

Um and that's that showed up clearly looking at the um doing all those numbers. The one of the really interesting things was well, I finished doing working out the rate of inflation.

SPEAKER_02 52:45

Yep.

SPEAKER_04 52:45

So then I added up the litres of diesel in the and the litres of unleaded that we'd used in the past four years and averaged it out that per year. And then same with fertilizer, just added up um tons of urea, uh urea grandm blend, tons of single super and tons of MAP.

SPEAKER_00 53:07

Yeah.

SPEAKER_04 53:07

And I priced that at today's price the fuel and the fertilizer at today's values. Have a guess what enterprise covered all that and did it easy. And also, with the increase we've had in price of that enterprise, it still left some cash in the bank. And that was the wool job. When I looked at the way wool's basically doubled, and you looked at that increase, the wool more than covered covered the increase in the fuel that we have to buy to come on our farm and the fertilizer. So every dog has its day, it does, and that's that's why we run an enterprise that has it free income streams, and that's merino sheep with high growth, high fertility, still cut a heap of wool. You have a wool income, a mutton income, and a lamb income. And you might say it's a flash in the pan, the price we've got at the moment. Well, we'll talk about that later when we talk about climate, because climate's now the governor of what's going on with commodities, as far as I'm concerned. And every single enterprise I look at cotton, sugar, grains, beef, lamb, wool, they all have their day in the sun. And that you're playing if you're if you can't get your head around being a long player, no matter what you want to do on your farm, whether it's grains, cotton, animal production system, you need to have a mindset you're in the long game.

SPEAKER_02 54:59

Yep.

SPEAKER_04 55:00

And you work out what you want to do, what you love doing, what suits the landscape you live in, and do a heap of it because one of the things we've got to get our head around is scale should be measured by revenue, not hectares.

SPEAKER_02 55:17

Yes.

SPEAKER_04 55:18

Traditionally, scale in most people's heads is hectares or acres.

SPEAKER_03 55:22

Yep.

SPEAKER_04 55:23

Oh, it's all right for them, they've got scale, they got more acres or hectares.

SPEAKER_03 55:27

How many acres you got, you know?

SPEAKER_04 55:29

Yeah. Oh, how big's your farm? Yeah, that's it. We never asked revenue.

SPEAKER_01 55:34

No, yeah.

SPEAKER_04 55:35

So so, and we can talk about scale and where the tie-ins are into the future with scale, and labour's very much one of those, but we'll just leave that alone for the moment. We might get time to come to it.