Wednesday 28 August 2013

Farmland Prices Have More Than Trebled

Farmland prices have more than trebled in the last 9 years according to the latest RICS Rural Land Market Survey.

During first six months of 2013, the cost of farmland jumped to an average price of £7,440 per acre across the UK, hitting a record high for the eighth consecutive period. In the South West average prices are a little below the national average at around £7,200 per acre. However, these prices include all sales of agricultural land, some of which may include fully equipped holdings with residential properties.

The residential element may therefore affect the overall average price of the land although probably not by as much as one would imagine. This is because most of the demand for land is coming from commercial farmers looking to expand their businesses as a result of higher commodity prices in recent years and investors who perceive agricultural land as a safe haven for their cash. Neither of these types of investors are looking to invest in residential property and are discriminating in favour of large, top quality, neighbouring plots with as small a residential component as possible.

As a result there is significant price dispersion, even in the same areas; plots that are smaller and of lower soil quality are attracting much less interest and achieving lower average prices.

Looking ahead, it seems that the market is far from finding its level. Respondents to the RICS survey expect the trend of rapidly growing prices to continue over the coming year with a net balance of 46 percent more surveyors predicting further growth.



James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells

T: 01749 683381
E: james.stephen@carterjonas.co.uk

Monday 19 August 2013

Fall in Wheat Prices

Now that harvest is well under way it is frustrating that the weather has turned changeable although at the time of writing it does look as though the weather may be a little more settled in to the early part of the week.  However, of more concern to may arable farmers is the continuing decline in the value of arable crops.

Wheat is currently trading around £143/t which is almost £10/t down in last week and £43/t down on the price this time last year.  It is of course hoped that this year’s crop will yield better than last year’s rain affected crop but even so with prices down approaching 25% compared to last year this does present a challenge to many farmers.

Similarly, Oilseed Rape, which is one of the most popular break crops in an arable rotation in this area, has seen prices fall by £95/t from £373/t this time last year to £278/t this year.

The reason for the fall in wheat price is largely because there are good harvest prospects across the northern hemisphere which is in contrast to recent years where the USA and other areas have been hit by drought or very wet weather as we experienced here last year.

As far as the Oilseed Rape is concerned there are similar factors in play.  Global production is predicted to be up thereby depressing prices but this market is also influenced by oil prices more generally because some of the Oilseed Rape is used in the biodiesel market.  However, European policy on biodiesel is under review which is likely to result in further price uncertainty although paradoxically prices did rise last week on news that the USA had reduced its estimate of Soya production which had a positive “knock on” effect on the Oilseed Rape market.

All this goes to show how the profitability of farming in this country is now intimately related to world market prices.  Therefore all farmers can do is influence the things over which they do have control and not worry too much about those things over which they have no control at all.  In simple terms this means they have to farm as efficiently as they can and then hope that world commodity markets hold up sufficiently to yield a sensible return on their investment of time and capital.

On the positive side, every cloud also has a silver lining and these lower prices should feed in to lower feed prices for livestock farmers which will be good news to many in mid-Somerset where in general livestock farming of one form or another tends to dominate.




James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells

T: 01749 683381
E: james.stephen@carterjonas.co.uk

Monday 12 August 2013

Milk Prices

The Rural Payments Agency reported that in June the average farmgate milk price increased by 0.8p/litre to 30.77p/litre. This is probably the highest average price that has been recorded but according to DairyCo, the price farmers are receiving for their milk today is in real terms about the same as that which they received over 20 years ago in 1992.

DairyCo is a not-for-profit making organisation working on behalf of and funded by Britain's dairy farmers. Its remit is to solve 'market failure' in the dairy industry by tackling issues not currently being dealt with sufficiently well to meet the needs of the industry. Its four main strategies to achieve this are by:
  • The provision of a world-class information service
  • Helping dairy farmers meet and manage environmental needs and regulatory requirements
  • Helping dairy farmers increase their profitability through better business management
  • Promoting the positive perception of dairy farming with the general public I suspect most readers will have never heard of DairyCo and so it may be failing to engage with the general public as well as it could but it is certainly an excellent resource for information on the dairy industry and so when it comments on matters such as milk price I think we should all sit up and listen.

Thus in their recent report it was stated that "Although actual prices are the highest on record, in real terms they are lower, which may explain why many farmers feel under pressure despite the current high price level." This pressure is evidenced by the fact that 22 dairy farmers ceased production in the last month and 1.8% left the industry in the last year.

The pressure comes from a whole variety of factors including milk price, increased regulation and increasing input costs. As far as milk price is concerned, one factor which comes in to play is world commodity prices which are currently strong and many dairy farmers will be frustrated that their milk price is not going up sufficiently to reflect this. But equally many of the milk processors are being squeezed in the middle, having increased the price they pay to farmers by on average 17.8% over the last year while retailers are holding down the price they pay at the other end to maintain their margins.

This seems to be evidenced by another recent report released by DairyCo on Cheddar Cheese Supply Chain Margins where it was found that retailer’s margin before deduction of their fixed costs accounted for nearly half (49%) of the average retail selling price of mild Cheddar in 2012/13. In contrast, processors have seen little change to their margins.

What this all goes to show is that the milk industry is a complicated business. But what concerns me is that the dairy farmers themselves seem to be at the bottom of a supply chain in which retailers in particular are in a strong negotiating position and are therefore able to secure a disproportionately high proportion of the profit that can be secured from a litre of milk. While this remains the case I fear dairy farmers will always feel under pressure.



James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells

T: 01749 683381
E: james.stephen@carterjonas.co.uk

Monday 5 August 2013

Harvest expected to be prolonged

This last week saw combines emerge from hibernation as the first crops of winter barley in this area have been harvested. This is about three weeks later than usual and the barley will then be followed by winter oilseed rape and winter wheat although the harvest of the latter still looks several weeks off.

Further, harvest is likely to be prolonged this year because a lot more spring crops have been sown as compared to most years. This was because of the very wet conditions last year which prevented farmers getting on the land last autumn. These spring sown crops will generally be harvested after all the winter sown crops, meaning that it is likely there will be plenty of crops still to be harvested well in to September this year.

This prolonged and late harvest will pose difficulties for next year because farmers will struggle to get next year’s crops sown early this autumn which will affect next year’s yield. This is particularly important for crops such as oilseed rape where yields will be significantly affected if sowing is delayed much beyond the end of September.

Thus, it is unfortunate that just as crops have started to come “fit” for harvest, that the prolonged spell of hot weather has broken down. This is not necessarily catastrophic because many farmers would like to see a little rain to keep the grass growing and to prevent the premature die back of some crops on lighter land.

However, no one wants the weather to breakdown completely just as harvest gets in to full swing because the added hassle of a “start stop” harvest and the additional cost of drying crops is the last thing arable farmers need to see after a very difficult twelve months.

As far as yields are concerned it is too early to judge how good this year’s crops will perform although early signs are that that winter barley which has been harvested has performed reasonably well although crop prices have eased back in recent weeks.

Barley is trading at around £138/tonne, wheat at just under £160/tonne while oilseed rape is trading at £290/tonne which is approximately £80/tonne less than it was trading at this time last year. Having said that, many livestock farmers will not be mourning lower arable prices because this should reduce the cost of supplementary feedstuffs. This will be particularly welcome to dairy farmers in this area, thereby demonstrating the diametrically opposite affects that arable prices can have on different sectors of the farming industry.


James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells

T: 01749 683381
E: james.stephen@carterjonas.co.uk