Drought and farm cash flow: your options

What happens to farm cash flow in a drought?

In a drought, costs keep running while income falls. Feed has to be bought, water carted, stock moved or sold, and crop inputs may go in with little or no return. Repayments continue. The cash gap often opens before the farm hits any formal trouble, which is why early steps are so valuable.

ABARES, the government’s agricultural economics agency, publishes regular outlooks showing how uneven conditions are. In its September 2026 release it forecast poor seasonal conditions in northern New South Wales and Queensland weighing on output, while South Australia, Victoria and southern New South Wales had more favourable conditions. Two farms in the same year can face entirely different problems, so any plan should start from the specific farm, not the headlines.

Ownright Custom Finance arranges farm and drought-related finance Australia-wide. Trevor Scott’s team deals with the full mix of options below, from simple restructures to private solutions when time is short.

What free and independent help is available first?

The Rural Financial Counselling Service is a free, confidential service for eligible farmers, fishers, foresters and small related businesses experiencing or at risk of financial hardship. Counsellors help build budgets and cash flows, assess viability, develop an action plan and negotiate with lenders. They also help people find other support, including Farm Household Allowance. The national information line is 1300 771 741.

A counsellor’s budget is often the document that opens doors with lenders, because it shows the farm has a realistic picture of the next twelve to twenty-four months.

What can the Regional Investment Corporation offer?

The RIC provides several loans for eligible farm businesses. For drought, the relevant products include the Drought Loan, the AgBiz Drought Loan for farm-related small businesses and the Drought Hardship Loan. All have eligibility rules, including generally that the applicant has commercial debt, can repay and has adequate security.

The Drought Hardship Loan is aimed at farmers in prolonged and severe drought. To be eligible, the farm has been in drought for at least two years and expects financial impact for at least the next 12 months. A government drought declaration is not required, because the Australian Government no longer makes them. RIC looks at rainfall history and projections, and the farm’s financial situation. The loan provides up to $250,000 over five years, with nothing to pay in the first two years; interest accrues and is paid from year three. Funds can cover operating costs such as wages, utilities, insurance, fodder, transport and livestock care, but cannot refinance existing debt.

Because these are government loans with their own tests, check ric.gov.au for the current terms before relying on them.

Is Farm Household Allowance available?

Farm Household Allowance is income support for farmers and their partners experiencing financial hardship, for any reason. It includes a fortnightly payment, an activity supplement and a Health Care Card, with a Farm Household Case Officer. To qualify, a person must be an Australian resident and a farmer or the partner of a farmer, meet income and asset tests and meet activity requirements. The farmer must contribute significant labour and capital to a farm enterprise, hold rights over Australian land used for farming and run an enterprise with a significant commercial purpose. Services Australia sets out the time limits and tests on its website.

What about Farm Management Deposits?

A Farm Management Deposit lets an eligible primary producer set aside pre-tax income in a good year and draw on it in a lean one. According to the ATO, an individual carrying on a primary production business can hold an FMD if their taxable non-primary production income is no more than $100,000 in the year of deposit. Total FMD balances must not exceed $800,000, and each deposit or repayment must be at least $1,000.

The 12-month rule matters in drought. A withdrawal within 12 months generally loses the deduction, with exceptions. One exception is severe rainfall deficiency, where the land is in a drought-affected area and the deposit has been held for at least six months. The withdrawal remains assessable income in the year taken. Anyone considering a withdrawal should speak to an accountant first.

How do you talk to the lender?

Lenders respond best to a farm that approaches them before default with a plan. Useful items to bring:

• An updated farm budget and cash flow covering the next one to two seasons.
• A summary of actions already taken, such as destocking, cost cuts or off-farm work.
• Evidence of support, such as a counsellor’s involvement.
• Specific requests: an interest-only period, a limit increase, deferral of principal or a restructure.

If the lender is already pressing, state farm debt mediation may apply. New South Wales, Victoria, Queensland and South Australia have legislated schemes, and Western Australia operates a voluntary one. Our guide on refinancing farm debt step by step sets out how they work.

When does refinancing or private finance make sense?

Where the existing lender cannot or will not extend, other routes exist.

Option	When it may fit	Points to weigh
Restructure with the current lender	Good relationship, solid equity	Quickest, but depends on lender appetite
Refinance to another lender	Better terms or appetite elsewhere	Valuation and approval take time
Farm second mortgage	Equity in the land, need cash without disturbing the first loan	Another layer of debt and cost; see farm second mortgages
Short-term private finance	Urgent, complex or declined	Needs a credible exit; costs and fees require careful weighing

None of these create rain. They buy time, and time is only useful if the plan for using it is credible: reducing stock, securing feed, planning for recovery, and in some cases selling an asset that is not core to the operation.

What costs and risks need weighing?

Every extra layer of borrowing adds cost, and borrowing to cover operating losses over successive seasons can deepen the problem. A sound plan asks what happens if the next season is also dry. Is there a point at which selling part of the property or plant is the better path? How are family members, guarantors and other entities affected? A rural financial counsellor and an accountant can help test these questions. A broker’s role is to find finance structured to fit the plan, not to push borrowing.

How do you plan for recovery, not just survival?

Drought support often focuses on getting through, but recovery has its own cash flow challenges. When rain finally comes, costs spike. Restocking, re-sowing, repairing infrastructure and rebuilding feed reserves all need funds before income resumes, and livestock prices can be high when you want to buy in. The RIC’s Drought Loan and Farm Investment Loan are designed in part with this phase in mind, to help businesses manage through, recover from and prepare for future drought, subject to eligibility.

A recovery budget should be separate from the drought budget. It answers a different question: what does it cost to return the farm to full production, how long will that take, and how will it be funded? Some farms rebuild gradually, restocking as pasture recovers. Others find that a restructure, with longer terms and an interest-only period, is what lets them rebuild without selling core assets. Lenders are more comfortable extending support when they see a credible path to recovery on paper.

What should be considered for livestock during drought?

Livestock is often both the biggest cost and the biggest source of cash in a dry spell. Decisions about destocking, agistment and feeding carry financial consequences that flow into lending.

• Selling stock: raises cash and reduces feed costs, but cuts future breeding capacity and may be sold into a weak market.
• Agistment: moving stock to better country can preserve the herd or flock at a cost for grazing, transport and management.
• Feeding: supplementary feed preserves stock but can be very costly if drought is prolonged.
• Insurance and finance: stock is often subject to a general security agreement, so lenders will want to know before significant movements.

For finance linked to stock, see our page on livestock finance. A rural financial counsellor can help model the options with the farm’s numbers, which tends to give far better decisions than guesswork.

How does drought affect a farm’s valuation and borrowing capacity?

Land values do not necessarily fall in a single dry year, but a prolonged drought can reduce income, depress local sales and affect how a valuer sees productive capacity. Lenders also consider the farm’s financial performance across several seasons, and a run of poor results will show in the numbers they assess. That is why early, honest planning matters. Our guide on what lenders look for in a farm valuation explains how valuers think about productive capacity and security.

On the other side, a farm that has invested in drought-resilient infrastructure such as water storage, fodder reserves, improved pastures or more efficient irrigation may present a stronger case. Evidence of those improvements helps a lender see that the farm has adapted. Where development finance is needed, see farm development loans.

What about family, succession and mental health?

Prolonged drought is not only a financial event. It puts pressure on families, workers and communities. Rural financial counsellors are used to supporting people through that, and can direct them to other services where needed. It is also worth having an honest conversation within the family about the longer-term plan, including whether a restructure or sale of part of the property fits the family’s goals. We cover the intersection of finance and family plans in our guide on farm succession and finance.

An illustrative example

An illustrative sheep and cropping property enters its third dry year. Feed bills are high, the overdraft is near its limit and the lender has asked for a review. The family contacts a counsellor, builds a budget and applies for the support they are eligible for. They also ask the lender for an interest-only period and open a conversation with Ownright about a refinance in case the lender declines. The result is a staged plan: immediate cash flow relief, a restructure and a recovery budget for when conditions improve. The sequence matters more than any single product.

What can be done before drought arrives?

Preparation is cheaper than rescue. Farms that fare better in dry runs often keep fodder reserves, hold some cash or Farm Management Deposits, maintain water infrastructure, keep their debt structure flexible and talk to their lender before the pressure builds. A standing relationship with a rural financial counsellor and an up-to-date budget mean that when conditions turn, the paperwork is already done. If your loan structure is rigid, a quiet year is a good time to ask whether a restructure or a different lender would give more room.

What mistakes should be avoided?

• Waiting until the overdraft is breached before seeking help.
• Using short-term, high-cost finance without a clear exit.
• Withdrawing Farm Management Deposits without tax advice.
• Not telling the lender about other support in place.
• Ignoring the family and mental health side of prolonged drought. Counsellors can point to support services.

How can Ownright help?

We look at the whole picture: debts, equity, timing and the lenders most likely to say yes. If you are weighing options, send us the outline of your situation and we will talk through the practical paths. No approval is promised, and each lender decides for itself, but we are good at finding options other brokers overlook. You can also read about drought finance and cash-flow support for more detail.