LAST week, my old mate Ted reminded me of the old adage "When everybody else is selling, buy and when everyone else is buying, sell".

He was talking about the sheep market from the comfortable position of retirement.

Like all adages, it needs more explanation when applied to real-life situations.

The situation for people who have had very disappointing results from crops in the past two years is real.

The swing away from cropping and back to sheep was to be expected, when the real costs and real prices over a run of seasons had, for many, failed to achieve the expected return.

My observation is that in a mixed-farming enterprise, the allocation of more than about 50 per cent of the farm area to crop starts to significantly increase risk.

For most farmers, turning over 70 per cent of their land to crop could cause their business to fail.

There is no guarantee of profit with either livestock or crops and feeding stock in prolonged drought is expensive.

But the reality is that in the past four years, the mutton market has been strong. As long as sheep are in suitable condition, it is possible to sell and lighten off.

Cropping is exactly the opposite.

Once you have sown a crop, usually with most of the inputs up front, you are committed and have to wait for it to grow. You can't bail out half way through.

If you have $100 invested in land, it is easy to borrow and spend $15 to crop it. That is, borrow 15 per cent of the land value on a crop. But if you don't get a harvest, you have reduced equity by 15 per cent.

Often there will be a harvest, but below expectations. Sometimes both yield and price will exceed expectations and you will have a bonanza.

Currently, the strength of the Aussie dollar and a short-term worldwide overproduction of wheat mean that grain prices are lightly to remain weaker until at least next year's harvest.

So the reality is that over a range of crops, over a range of seasons, the risk of failure can be too great for many businesses to bear and maintaining livestock in the system can reduce that risk.

If Ted came out of retirement today and purchased a farm, it would be very risky for him at today's prices to stock the whole farm with sheep.

Setting up the farm with machinery would also be very expensive.

But Ted's a wiley old bloke. I think he'd crop about half the farm using share farming and contractors, ease his way into sheep and run about half his total dry sheep equivalents in trading sheep or cattle.

Of course, if I suggested that, he would be reluctant to do it.