While teaching a group of young farmers recently, one young lad discussed with me his desire to purchase a tractor to go contracting.
Not only would he be working it around the district, he would also be using it on his family's farm and a neighbouring property where he worked part time.
To me this sounded like a low-risk exercise and I gave the lad positive feedback.
During our conversation we spoke about his employer's purchase of a seeder a couple of years ago, which had not been used all that much.
I wonder how many of these types of purchases were made when farmers pockets were full and the government tax incentives were high.
Commodity prices in the grazing industry have taken a solid hit in the past 12 months and my well-hacked phrase - it is the decisions that you make in the good times that get you through the leaner of bad times - comes to mind.
In good times, it is easy to turn a want into a need and it may well pay a lot of farmers to revisit how they made some of their investment decisions in the past five years.
While some lesson will have already been learned I believe there are still many more to be learnt.
On occasions, an investment like the seeder example used previously can be converted from a mediocre to a good decision but it has taken a downturn for this to happen.
It will also pay many farmers to review their approach to repaying debt when interest rates were low.
I understood their logic that they could generate a much better return by retaining the debt and using it back in the business.
Debt is good until such time it gets into the hands those who do not know how to manage it properly.
Debt enables farmers to progress, pursue opportunity and have a better life and debt management is not a one fits all. Making good bankable profits is the greatest antidote to debt.
One thing I have always been keen on is the use of farm management deposits, despite the modest returns they achieve.
Having made such a deposit in good years and accessing it in poor ones can be both tax effective and reduce the risk and reliance on the banks.
I have seen so many farmers "living like a drover's dog" in poor years and making crazy but understandable decisions just to survive.
The human cost in a poor year can be lessened greatly with FMDs.
Having one year's working capital - or going as close as you can to this amount - tucked away in a FMD can be the greatest stress reduction tool many farmers can have.
Making important decisions when highly stressed is somewhat risky.
In researching the amount of money invested in FMDs in Australia, the latest number I could come up with was $5.8 billion dollars in March of 2022. It would most certainly be higher now.
This indicates to me there is a considerable number of farmers who have considered FMDs a sound move.
As we progress through each investment cycle in agriculture, it is important to review the quality of the immediate past investments we have made, to make sure we have learned all the lessons to make better decisions as we progress throughout our future farming careers.
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