Levers make a difference for low-margin farming

Incremental improvements a winner when farming on the edge

Grower Stories
South Australian grower Peter Kuhlmann farms in what he describes as a 'hostile environment', where he says incremental improvements to grain yields, costs and prices can make a big difference to overall business profit. PHOTO Andrew Brooks

South Australian grower Peter Kuhlmann farms in what he describes as a 'hostile environment', where he says incremental improvements to grain yields, costs and prices can make a big difference to overall business profit. PHOTO Andrew Brooks

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Low-margin operation on the edge of the Nullarbor Plain is a business success.

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SNAPSHOT

  • Grower: Peter Kuhlmann
  • Farm name: Mudabie Pty Ltd
  • Location: Mudamuckla (Ceduna), South Australia
  • Business enterprise: Two-thirds cropping, one-third pasture/livestock
  • Property size: 14,000 hectares (owned and leased land)
  • Soil types: Limestone
  • Soil pH: 8.6
  • Average growing season rainfall: 213 millimetres

Improving yield and price while decreasing business costs - all by just one per cent - can increase overall yearly profits significantly, particularly in low-rainfall, marginal grain growing regions.

Peter Kuhlmann is a third-generation Ceduna, South Australia, grower who understands low-input, low-margin farming - and the huge value of making small adjustments in his streamlined mixed cropping and livestock business.

Farming in what Peter describes as "hostile" country, the business is one-third pastures and self-replacing Merinos (2200 ewes) and two-thirds cereal cropping of up to 10,000 hectares of wheat and barley - and a small area of oats.

Highly calcareous, alkaline soils, which in the worst places only go as deep as 20 millimetres before hitting limestone, present major challenges to profitability, but are also, surprisingly, the foundation on which this successful farming business has been built.

Not only does this shallow soil type dictate his rotational choices, but the water holding capacity in the low-rainfall region is very low.

Pressure points

Peter Kuhlmann says it has been several years since his Ceduna property has received its long-term average annual rainfall. PHOTO Andrew Brooks

Peter Kuhlmann says it has been several years since his Ceduna property has received its long-term average annual rainfall. PHOTO Andrew Brooks

Wind erosion, high-phosphorus-fixing soils, regular droughts, limited domestic marketing opportunities, snails, mice, plus the myriad of other challenges facing most grain production businesses, all squeeze profit from the business's bottom line.

In 2019, with just 167mm of annual rainfall, Peter's crops averaged just 0.6 tonnes per hectare - and this was the third consecutive year of these dry conditions.

Average annual rainfall is 290mm and growing season rainfall averages 213mm. Peter says it has been several years since he has seen anywhere near average rainfall levels.

"The local weather data shows we have lots of small rainfall events, and we have less than seven events a year above 10mm," he says.

"We will only ever receive over 25mm in one rainfall event in two out of three years."

Every year is a challenge in this environment. But it is a business that has survived for more than 100 years and which Peter has been running on his own for more than 40 years.

Benefits of travel

Peter Kuhlmann has made valuable connections through his role on the GRDC Southern Region Panel. PHOTO Andrew Brooks

Peter Kuhlmann has made valuable connections through his role on the GRDC Southern Region Panel. PHOTO Andrew Brooks

Despite the black marks against the region, Peter's business is doing well, with high equity levels, strong balance sheets and off-farm investments.

Peter is a GRDC Southern Region Panel member and has spent time travelling and networking with leading growers around the world.

He says it is through these important connections that his thinking about his marginal farming business has changed.

"Perhaps in the past I might have described myself as trying to grow crops in a thin bit of dirt among limestone near the Nullarbor Plain, where we have had three very dry years in a row and only had 168mm in 2019," he says.

But these days, he says, his "elevator pitch" is very different.

"I manage a professional family business that has been producing quality export wheat, barley and wool, using best management practices for over a century."

Presenting to the GRDC Farm Business updates earlier in the year, he likened his new positive attitude to changing the colour of his "thinking hat".

I manage a professional family business that has been producing quality export wheat, barley and wool, using best management practices for over a century. - South Australian grower Peter Kulhmann

"It is about having that positive mindset and turning your thoughts from what lateral thinker Edward De Bono called the 'black hat' critical and judgmental thinking, and putting on a different thinking hat - maybe a yellow hat for positive thinking or the green thinking hat which considers innovation and growth," Peter says.

"We need to be grateful for what we have and focus on the new ideas and the opportunities in front of us.

"We have a large-scale farm with relatively cheap land, we grow something almost every year and have sheep for diversification.

"We have reticulated water, good-quality machinery and generic chemicals that still work in this area."

Every lever in this equation that we can move has a major impact on the bottom line of the business. - South Australian grower Peter Kuhlmann

The business is close to a port, town, airport and beach, and has loyal staff, off-farm investments and good farm equity.

"We need to be grateful for all of the things, especially in these current times, from waking up in the morning through to our great fortune of living in a country like Australia," Peter says.

"If you are part of a farming business, it is probably a multi-million-dollar business - so how good is that?"

The one-percenters

Peter Kuhlmann has calculated that by increasing his crop yield by 11 kilograms/ha, his grain business profit can increase by 11 per cent. PHOTO Andrew Brooks

Peter Kuhlmann has calculated that by increasing his crop yield by 11 kilograms/ha, his grain business profit can increase by 11 per cent. PHOTO Andrew Brooks

Australian Export Grains Innovation Centre (AEGIC) chief economist Ross Kingwell presented a paper to the 2019 GRDC Grains Research Updates on the value of 'one-percenters', which prompted Peter to use his own data to check how the results applied to his business.

By improving his average grain yield and price by just one per cent, plus reducing his costs by another one per cent, what is the impact on profit?

In his Updates paper, Professor Kingwell looks at the impact of changing these three levers all by just one per cent.

That is, lifting the wheat price by one per cent, improving crop yield by one per cent and lowering costs of production by one per cent - to demonstrate the overall impact on a farm business bottom line.

Using the well-known formula of Profit = Yield x Price - Costs (where yield is average grain yield per hectare, price is average price received per tonne, and average costs per hectare include all variable, finance, depreciation and overhead costs), Peter's numbers make an interesting case in the conversation about "one-percenters".

"Just by increasing the crop yield by 11 kilograms/ha, which is not much to most businesses, my grain business profit will increase by 11 per cent," Peter says.

In fact, if all three levers are moved favourably by one per cent, then his total business profit jumps by a massive 33 per cent.

"Every lever in this equation that we can move has a major impact on the bottom line of the business," he says. "You have a gut feeling but by using your own actual data it becomes reality."

Tracking success

Peter believes benchmarking is useful when comparing business performance against other producers but the real value, he says, is to track your business performance over time.

"Another analysis I use is to determine paddock gross margins using variable costs to see which paddocks are making the money for you," he says.

Peter spent much of the 2019-20 post-harvest period reviewing his historical paddock gross margins from the past six seasons and he has been able to identify which paddocks - and which rotations - have performed for the business and which have not.

His financial analysis also included an averaged value for the sheep grazing on the pastures.

Peter says this was an interesting exercise, despite the yield and price volatility - with the "best paddocks/soil" not necessarily achieving the highest gross margins.

"I am hoping this will correct in more normal seasons," he says.

"But this analysis did confirm my earlier decision to limit cropping to cereals, leaving the very shallow paddocks to pasture and only cropping them on an irregular basis."

Peter has grown canola and lentils in the past, but the low or negative cropping gross margin was not compensated for in subsequent crops, especially in dry years.

The last time he grew canola and lentils, he says he lost $200/ha.

These days, his break crops are regenerating medic pastures, which are low-maintenance and good nutritional feed for his livestock.

Disease and weed control will always be a challenge in this environment, given the inability for the business to grow any other break crops besides medics.

'One-percenters' tactics

Improving his 'one-percenters' means Peter focuses on a range of practical strategies, including:

  • timely seeding;
  • precise seed placement;
  • variable-rate fertiliser application;
  • pre-emergent or early weed control;
  • a single nitrogen application at seeding;
  • generic brand chemicals instead of brand names;
  • tillage for perennial weeds;
  • improved pasture management; and
  • improved sheep nutrition and management skills.

Life lessons

Careful business planning and getting the structure right is important for Peter Kuhlmann. PHOTO Andrew Brooks

Careful business planning and getting the structure right is important for Peter Kuhlmann. PHOTO Andrew Brooks

After more than 40 years in farming, Peter has come up with several simple foundations on which to build a successful business.

First, choose your life partner carefully.

"In a farming business, your life partner will end up being your business partner and if you get it wrong, it could be equal to three or four droughts in a row in terms of the financial and emotional impact on your business," he says.

"Next, ensure you have an appropriate business structure and constantly communicate with everyone in the business.

"Also make sure your wills and succession planning are up to date - that is really important when you are talking about businesses that have millions of dollars tied up in some capacity."

Further, engage experts who understand your business and make sure your accountant, bank manager, agronomist and adviser all understand your business and your goals.

This could also include the establishment of an advisory board, he says.

"Superannuation funds are an excellent forced saving plan and, if possible, consider off-farm assets and farm management deposit."

Roles of the advisory board

Another very important part of Peter's business is his reliance on his farm advisory board.

A strong believer in the value of mentors, Peter uses this very carefully-selected board to help him make major business decisions.

"My Dad handed me this business when I was just 22-years-old because he had confidence in me as a business operator, and then he became a mentor to me for the remainder of his life," he says.

"Likewise, the people on this board also act in this way for me and, even though we now only meet twice a year, I will often use them throughout the year to bounce ideas around and clarify my thinking on big decisions."

The board comprises:

  • an independent chair;
  • three leading growers;
  • Peter, and his partner Leanne; and
  • the farm operations manager Andre Eylward.

"I have asked these leading growers to be part of my board because I believe it provides the best opportunity to improve the business through improved farming systems," Peter says.

His daughters are now observers, which may transition to them being active farm owners in the future - which, he says, was not a consideration until recently.

The board costs the business $15,000 annually, which Peter believes pays for itself in sound business decision-making.

He says much of its value is in the forced requirement for him to keep on top of his reporting and understand the business numbers.

"It is a bit like when you have a cleaner coming in - you always tidy-up the house first," he says.

"This board keeps me accountable and considers farm reports, paddock planning, grain marketing, capital finance options, budgets, farm compliance issues and long-term strategy, and incorporates a farm inspection."

See also:

More information: Peter Kuhlmann, mudabie@bigpond.com

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