Abstract This paper explores the value of using historical climate knowledge, Southern Oscillation Index (SOI) and stored soil moisture at sowing time of wheat and canola crops to manage nitrogen application for increasing economic benefits from crop production and reducing drainage of farming systems at Walbundrie in Southeast Australia. The Agricultural Production System Simulator (APSIM) was used to simulate crop production and drainage passing the crop root zone in response to nitrogen application rates from 0 to 300 kgN ha−1 year−1 using historical climate records from 1889 to 2002. The skills of SOI phases to forecast growing season rainfall and crop yield were analysed. The impact of nitrogen management based on historical climate knowledge, SOI phases and stored soil moisture was assessed. The results showed that while the optimal N rate for maximum economic return was around 150 kgN ha−1 year−1 based on long-term average climatic conditions, it varied significantly from year to year depending on rainfall. Compared with current N application rate of 100 kgN ha−1 year−1 in the study region, the optimal N rate of 150 kgN ha−1 year−1 derived from historical climate knowledge could lead to an increase of wheat gross margin by AU$74 ha−1 year−1. The April to May SOI phases were useful predictors of growing season rainfall and grain yield of wheat and canola crops. The optimal N rates were 100, 150, 200 kgN ha−1 year−1 in the years when April/May SOI phases were falling/negative, near zero, and rising/positive, respectively. Based on such management, wheat gross margin was only increased by 2%, 0%, and 1%, respectively, corresponding to a mean increase in gross margin of AU$6 ha−1, compared with N management at the optimal fixed N rate of 150 kgN ha−1 year−1. Stored soil water at sowing time (SSMS) showed positive correlation with crop yield. However, combining April/May SOI phases and SSMS to manage N application only increased wheat gross margin by AU$8.8 ha−1, and reduced deep drainage by 1.7 mm year−1 for wheat, compared with N management based historical climate knowledge. Similar results were obtained for a continuous canola cropping system.