The increased cost of living is a very hot topic at the moment, with price increases affecting everything from our groceries to fuel, but what also needs to be considered is the increased cost of farming.

We are finding that a lot of clients, even though their income is around what they expected, are finding themselves hitting their overdraft limit throughout the season. This isn’t necessarily happening because they are materially purchasing more things, it is more likely happening because it simply costs more to run a farm than it did a few years ago.

From volatile costs like chemicals, fertiliser and fuel to more consistent expenses such as wages and insurance, the cost of farming has increased. Global events have caused significant movements in fuel and fertiliser prices, while increases in expenses such as wages, insurance, repairs and other operating costs are happening closer to home and may be more permanent.

When grain or livestock prices don’t increase at the same rate, there is pressure on both sides of the equation, and we are seeing that some farmers may need more working capital just to get through the same season they previously could have funded with a smaller facility.

Your $500,000 Overdraft Isn’t What It Used to Be

Let’s take a farming business with a $500,000 overdraft that was set up seven years ago. At the time, that facility may have comfortably covered cropping inputs, livestock expenses and general operating costs, while most likely still leaving a little buffer.

Fast forward to the 2025/26 season, and after a poorer previous season, when overdraft limits were hit you might have thought it was simply due to the drought. While that may have been a contributing factor, if you have found yourself this season getting close to or exceeding your overdraft limit again, it might be more than just the impact of one poor season and could be more closely aligned with the higher cost of running the business.

The business may be the same size, running essentially the same enterprise, but the cost of operating it has increased significantly compared with seven years ago.

It’s Not Just One Expense

When expenses increase a little bit at a time, year after year, it can be difficult to identify just how much your overall cost base has changed. A large one off increase in an expense, such as fertiliser in a particular year, may be easily identifiable, but gradual increases across fertiliser, chemicals, fuel, wages, insurance, contracting, repairs and maintenance can be much harder to notice.

Diesel is also a good example of how much farm operating costs have increased. The national average diesel TGP was 108.4 cents per litre in 2020, compared with 167.9 cents per litre in 2025. That is an increase of approximately 55% in five years. (Data taken from Australian Institute of Petroleum)

Our advice to identify your expense increases is to review and compare your major expenses year on year, focusing on fertiliser, chemicals, contracting expenses, repairs and maintenance, interest, insurance and wages. Compare these not only with the season before, but also with your costs over the past five years. All costs that can be negotiated may be worth shopping around for, but simply being aware of how your expenses have changed can help you budget more accurately and make sure your facilities still suit the needs of your business.

But Has Your Income Kept Pace?

The next area to focus on is whether your income is keeping pace. Increases in expenses aren’t necessarily a problem if your income is increasing at the same rate.

Unfortunately, that won’t always be the case. Grain prices are a good example because, while they move considerably from season to season, an increase in operating costs doesn’t automatically mean you receive a corresponding increase in the price of what you produce.

For some context, ABARES recorded APW wheat at Port Adelaide at $342 per tonne in January 2021, compared with $385 per tonne in January 2026. That is an increase of around 13% over five years. Compare that with the approximately 55% increase in diesel prices over a similar period, and you can see how quickly margins can come under pressure when the prices received for farm produce do not keep pace with increases in major input and operating costs.

If your business turnover was $1 million in 2021 and it cost $600,000 to produce your crop, you had $400,000 remaining before other costs and commitments. If in 2026 you still turn over $1 million but it now costs you $750,000 to produce that crop, the amount left over has taken a significant hit. If you only review your income, you may not notice the full impact, which is why reviewing your margins can be so important when assessing how successfully the business is operating.

This is where reviewing the margin in your cost of production should become a priority. If what you are spending is matched by the income you are generating, then the increased cost may be manageable. However, if you find yourself spending more and the income isn’t keeping pace, you have a problem. If you happen to be spending less while your income is increasing, give us a call and tell us your secrets!

Reviewing margins and playing around with different budgeting scenarios can assist with your planning for the year. If you know you need to achieve a certain price or yield for a crop to produce a reasonable margin, and the season isn’t looking kind, it might identify early that you will require some extra capital in the following season to get through.

How to Know if Your Working Capital Needs Increasing

Most farming businesses need an overdraft because income and expenses do not align throughout the year. In fact, when farmers are spending the most money is usually when the least amount of income is coming in, so one of the best ways to tell if your overdraft still matches your operating expenses is to prepare a budget.

We have a great budget that we work through with our clients, so reach out if you would like a template to use, as we are more than happy to share our resources. Putting your overdraft balance into your budget can help you see where your debt peaks throughout the season. If your projected debt peaks above the limit of your overdraft, start conversations early with your broker and banker, rather than waiting until the facility is nearly full. This can reduce a lot of stress throughout the year.

Our other piece of advice is to use your budget as a working document. If you are spending more on fertiliser because the season is looking good, or more on feed in drier years, it is important to add that into the budget as you go and see where your peak debt is likely to land. If you can clearly explain why your overdraft needs to increase, and support that explanation with an updated budget, it can also help your banker better understand and justify their support.

The next key thing to check is whether, after all your seasonal income comes in, your overdraft balance returns to zero, or close to it. If part of the debt remains year after year, it may indicate that some of what you are treating as working capital has effectively become longer term debt.

As overdrafts and other short term facilities can come with different pricing and repayment structures to longer term lending, it is important to consider whether the facility is still appropriate for the debt it is carrying. If you are finding there is an amount that is unlikely to be repaid through a normal seasonal cycle, it may be worth discussing whether some of that debt should be restructured into a longer term facility. The right approach will depend on your individual circumstances and should be considered with your broker and other advisers.

More Limit Isn’t Always the Answer

A key takeaway is to understand why you require an increase. If margins are tighter and your business needs more money to fund its normal operating cycle, then an increased overdraft may be necessary.

But an increase should never be seen as a simple bandaid fix. Understanding why the facility is no longer sufficient for your business is extremely important, because there is a big difference between needing more working capital because the same farm now costs more to operate and continually increasing debt because the underlying business is no longer generating enough margin.

A budget, a review of your costs over several years and a realistic look at your margins can help you work out which situation you are in. Once you know that, you can have a much more useful conversation with your broker and banker about what your business actually needs for the season ahead.