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#042 - I've Seen 40% Cattle Price Drops Kill Good Farms (Make Sure Yours Isn't Next) · Dollars In The Dirt

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  A 40% drop in cattle prices can destroy even the strongest farms.
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  Most producers think their operations are too solid to be seriously
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  threatened by market swings. After helping hundreds of farmers secure
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  over a billion dollars in finance, I can tell you that even well-run
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  farms fail without a cash flow buffer and debt structure built
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  for downturns. So in this video, I'm going to show exactly how
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  to protect your farm from a devastating price crash. Let's start
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  by talking about what a 40% drop in cattle prices actually means
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  for a beef producer like you. Imagine you've been running
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  a solid operation, turning over around $4 million a year. Your
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  margins might be tight, but they're manageable, and you've got a plan to
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  reinvest in your property and grow your herd. Now picture, the
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  market takes a nosedive and suddenly the price per kilogram drops
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  by 40%. And that's not a small blip, that's a
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  seismic shift that slashes your revenue by nearly half. And
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  it can happen faster than you think. To put this in perspective, say
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  you're selling cattle at $4 per kilogram, a 40% drop
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  means prices fall to $2.40 per kilogram. If
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  you were selling 2,000 head a year, that's a revenue drop from 4 million
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  down to around 2.4 million, but your costs don't fall in
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  line with that. Your feed, your wages, machinery upkeep, and
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  loan repayments, well, they all stay the same. Suddenly, the cash flowing
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  into your bank account is barely covering your outgoings. This kind
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  of shock isn't hypothetical. Back in 2016, Queensland producers
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  faced a similar price crash due to a combination of drought and
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  global market pressures. Many farms that seemed rock
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  solid suddenly found themselves struggling to meet loan repayments and
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  maintaining their herds. Some had to sell breeding stock or
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  even parts of their property just to stay afloat. It's
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  a harsh reality that can happen to anyone. So when prices fall
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  this sharply, the immediate impact is on your cash flow. You're
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  still dealing with the same fixed costs, feed, wages, machinery,
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  rates, loan repayments, but your income has taken a massive
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  hit. Without a cash flow buffer, you're forced to scramble, maybe
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  sell your stock early at a loss, or even delay essential maintenance and
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  improvements. Worse still, if you're locked into a
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  debt structure that doesn't allow any breathing room, you
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  could find yourself in real trouble with your lender. For example,
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  I worked with a producer near Roma who had a $4 million turnover beef
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  operation. And when prices dropped, he didn't have enough
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  cash reserves and was forced to sell off his prime cows to
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  cover the costs. This decision reduced his
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  herd reproductive capacity the following season, which
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  meant fewer calves, less income down the track. It
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  was a tough cycle that could have been avoided with better financial planning.
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  And that brings me to the first key point, the importance of having a
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  cash flow buffer. This isn't just about having some savings
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  in the bank, it's about building a financial cushion that can absorb
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  shocks when prices drop or even unexpected expenses pop
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  up. For many farmers, this means setting aside
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  a portion of profit during a good year to cover operating costs
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  for several months if the market turns against them. Building this buffer
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  isn't easy, especially when margins are tight and you're reinvesting
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  in your business. But it's crucial. Think of it like insurance for
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  your farm's day-to-day operations. Without it, a 40% price
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  drop can force you into serious decisions that compromise your
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  long-term viability. For example, having to sell off breeding
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  stock to cover short-term cash needs might solve an immediate cash
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  problem, but can cripple your herd's future productivity. In
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  practical terms, if your annual operating costs are around $3 million,
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  you might aim to have a buffer that covers at least three to six months
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  of these costs. That means you have to have $750 to $1.5 million
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  set aside and accessible. For many producers, that's
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  a big ask, but it's the difference between weathering a downturn or
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  facing insolvency. Another aspect of
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  the cash flow buffer is managing your working capital wisely.
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  That means keeping a close eye on receivables, payables and
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  inventory levels. Efficient working capital management can free
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  up cash that might be otherwise tied up unnecessarily. It's
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  about making sure you have enough liquidity to meet your obligations without
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  resorting to high cost borrowing or asset sales. For
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  instance, if you have feed on hand that is immediately needed, selling
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  some of it or converting it into cash can help maintain liquidity,
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  or negotiating longer payment terms with suppliers can ease
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  your cash flow pressure during tough months. On
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  the receivable side, ensuring you get paid promptly for livestock
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  sales or any government grants is crucial. And
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  every dollar tied up in unpaid invoices is a dollar that you
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  can't use to cover expenses. This is a good point to
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  pause and say, if you're looking at purchasing a property or growing your business
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  and you want someone genuinely in your corner, book a free call. I
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  can help you get the right loan structure that fits your operation and
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  prepare you for market swings. My links are in the description. Now
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  let's talk about debt structure resilience. This is where many producers
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  get caught out. When you take on debt, it's easy to focus
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  on the interest rate or the monthly repayments. But what really matters
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  is how flexible your loan is when times get tough. A
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  resilient debt structure includes features like an interest-only period,
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  redraw facility, working capital facilities that
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  you can tap, and working capital facilities that you can tap into
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  when cash flow tightens. Interest-only periods can
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  be a lifesaver during downturns. They reduce your monthly
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  outgoings, giving you breathing room to ride out low-price periods
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  without defaulting on your loan. But not all lenders offer
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  these features and some only provide them for a limited time under strict conditions.
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  That's why it's important to work with a broker who understands your business and
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  negotiate the right terms for you. Take an example of
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  a Central Queensland beef producer. He had a $4 million turnover and
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  when prices dropped, his loan repayments became unsustainable. Fortunately,
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  his broker negotiated an interest-only period for six months,
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  which gave him time to adjust his business plan and avoid selling off assets
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  at a loss. Without that flexibility, he might have faced forced
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  sales or worse. Working capital facilities are
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  another critical tool. These are revolving lines of credit
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  that can be drawn down to cover day-to-day expenses or unexpected
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  costs. Unlike fixed term loans, they offer flexibility
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  because you can pay interest on the amount you use. Having
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  access to this kind of facility means you're not forced to
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  sell assets or cut corners when cash flow is tight. Imagine
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  if you needed to repair machinery urgently to keep your operation
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  running, but you don't have the cash on hand. A working capital
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  facility lets you cover the costs immediately and pay it back when
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  your cash flow improves. This flexibility can prevent small
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  problems from snowballing into bigger issues that threaten your business. The
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  third point I want to cover is the value of stress testing your
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  business with your broker. Stress testing means running scenarios that
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  simulate adverse conditions like a 40% drop in cattle
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  prices to see how your cash flow and debt repayments hold up. It's
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  not about being pessimistic, it's about being prepared and
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  when you work with a broker who knows agriculture, you can model
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  different price points, interest rates, operational changes to
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  identify vulnerabilities in your financial setup. This
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  helps you to protect and understand how much buffer you need, whether
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  your current desk structure is sustainable and what adjustments might
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  be necessary before trouble hits. For example,
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  stress testing might reveal that your current loan repayments are
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  manageable at today's prices, but they become unserviceable if
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  prices drop by 30%. Knowing this in advance allows
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  you to negotiate more flexible loan terms or building a larger
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  cash buffer. It also helps with the strategic decisions, like
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  whether to expand your herd or invest in infrastructure during
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  uncertain times. Stress testing isn't a
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  one-off exercise either. Markets change, costs
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  fluctuate, and your business evolves. Regularly revisiting
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  your financial model with a broker ensures you
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  stay ahead of your risks and can adapt your strategy accordingly. It's
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  about turning uncertainty into manageable risk. So
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  let me share a story. I had a client near Toowoomba who was planning to
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  expand his herd and buy additional land. Before moving forward,
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  we stress tested his business under different scenarios, including a
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  severe drought combined with a 40% price drop. The
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  results showed that the whole expansion was possible, but
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  he needed to restructure his debt and build a larger cash buffer first.
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  Because of this insight, he delayed the expansion and avoided what
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  could have been a financially crippling mistake. Finally, I
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  want to emphasise that protecting your farm from price crashes
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  isn't just about finance, it's about mindset and planning. Markets
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  will always have their ups and downs and the difference between the
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  farms that survive and the ones that fail is often how
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  prepared they are for the inevitable downturns. That
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  means being proactive and not reactive. It means having an honest
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  conversation about your financial position and seeking expert advice
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  and making decisions that prioritise your long-term sustainability over
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  short-term gains. It means understanding that your loan isn't
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  just a tool to grow your business, but the responsibility that needs
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  to be carefully managed. For example, producers who regularly
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  review their financials and stress test their operation tend to
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  spot warning signs early. They might notice rising
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  input costs or shrinking margins and adjust their strategies accordingly.
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  Maybe they delay non-essential purchases or renegotiate with
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  a supplier around a contract agreement. These small actions
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  can add up to the big differences when the market turns. So
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  to wrap up, a 40% drop in cattle prices is a real
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  threat that can devastate even the strongest farms if you're not prepared. The
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  key to surviving and thriving through these downturns lies
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  in having a solid cash flow buffer, a resilient debt structure
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  with features like interest only periods, working capital facilities, and
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  also regularly stress testing your business with a knowledgeable broker. If
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  you want to make sure your farm is set up to handle the market swings and
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  you're thinking about purchasing a property or expanding your business, don't
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  hesitate to reach out. Book a free call with me and I'll help you find
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  the right finance solution tailored to your operation. My links
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  are in the description. Thanks for listening. I'm Brecon Curtis
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  and I'm here to help you build a farm business that lasts through the good times and