Farming News - Rural property and business update from Knight Frank

Rural property and business update from Knight Frank

05 Oct 2020
Frontdesk / Finance

Agricultural land values are weathering the uncertainty of Brexit for now and, for those looking to buy, lenders are offering some very attractive long-term deals. Meanwhile, older cattle are in the firing line and Boris has vowed to protect more of the countryside. Andrew Shirley, Head of Rural Research looks at Commodity markets,land values,climate change and finance.

Commodity markets

There was limited movement on commodity prices this week with the recent rally in feed wheat prices – up by around £20 over the past two months – losing a bit of momentum. However, a shock downward revision of US wheat and corn stocks by the USDA could put some upward momentum back in the market. At 59 million tonnes, wheat was three million tonnes below trader expectations.

Agricultural land values – Prices inch up despite uncertainty

The average price of bare agricultural land in England and Wales hit £7,000/acre for the first time in over a year during the third quarter of 2020, according to the Knight Frank Farmland Index. 

A number of deals are still comfortably breaking the £10,000/acre barrier as buyers bid competitively for the few large blocks of quality land.

"Values rose by 0.5% between June and the September, but due to a small dip at the beginning of the year are only slightly up on year-ago levels. Over a five-year period the index has slipped by 16%, but it is still 20% higher than it was a decade ago."

A shortage of availability due to the Covid-19 pandemic – according to the Farmers Weekly Land Tracker the amount of land launched is down 41% so far year on year – and pent-up demand has helped to keep values steady, despite the prevailing Brexit uncertainty.

Farmers, often backed up by rollover funds, are still the main purchasing group, accounting for 41% of buyers, with lifestyle purchasers making up 36% of the market. Investors were involved in almost 20% of deals.

The outlook for the next 12 months will depend on whether the UK eventually makes a trade deal with the EU and also on the outcome of Chancellor Rishi Sunak’s delayed budget, which is now not due to be presented until the spring. 

However, with potential vendors still reticent about bringing their farms to market, average values should hold their own in the short term. A no-deal Brexit could even make UK land more attractive to overseas investors if the pound continues to lose ground against the euro. 

Download our full Farmland Index report for more analysis and data

Agricultural finance – Low rates on offer, but lenders asking more questions

If the above inspires you to buy some farmland, there are some extremely low fixed-rated deals being offered by lenders at the moment. I spoke to Rachel Barnett, an agricultural specialist at Knight Frank Finance for her take on the market.

“For farms and estates that can provide confidence to lenders, now is a great time to borrow - 1.45% fixed for five years is available against land and property and there are 10-year fixed rates as low as 2%.

“Alternative lenders are also coming to the market who are prepared to look at alternative ways to structure farm and estate borrowing. For example, prefunding interest for two years meaning they will be less likely to overanalyse income streams.

“Lenders in general though are fairly cautious at the moment. They remain very keen to lend to farms and estates, but are often asking for more information than normal from clients.

“Examples of this include asking for commentary on how COVID has affected them (good and bad) and projected numbers going forward – whereas historically it has all been about evidencing the past three years.”

Please contact Rachel for more information on how she can help with new loans and debt restructuring

Climate change – Mooted tax on older cattle provokes debate

The livestock sector has come in for a lot of stick from climate change campaigners due to the perceived greenhouse gas contribution of animals such as cows. 

In a bid to cut emissions the National Beef Association has proposed that a £100 charge should be levied on producers who keep prime cattle beyond 27 months. Part of the logic being that older animals are less efficient at converting food into energy and therefore emit more greenhouse gases.

"NBA Chief Executive Neil Shand also said that the move would free up more land and feed that would help create a more efficient national herd better able to compete with beef imports."

However, my colleague Tom Heathcote, our Head of Agri-Consultancy and a keen proponent of regenerative agriculture, believes older cattle, in particular native breeds, have an important role themselves to play in cutting emissions.

“Without some kind of exemptions, this idea could encourage farmers to use non-native breeds to finish cattle sooner predominantly on cereal based diets including soya that carries significant environmental issues.

“Cattle finished on cereals quickly produce meat that is not as nutritionally dense compared to that from a cow slowly finished on grass.”

“There is currently a significant area of upland land that is unsuitable for continental breeds and needs native hardy breeds, which naturally finish slower, to manage it.”

“Notwithstanding the environmental issues, feeding them cereals for a finish quicker will erode margins and the stock are not bred for it. 

“Current and future Countryside Stewardship and Environmental Land Management schemes support native breeds which finish slowly, so there could also be a conflict here,” adds Tom.

Please contact Tom for advice on how regenerative agriculture could help cut carbon emissions from your farm or estate while improving profitability and boosting soil resilience.

The environment – Boris pledges new protection for vast swathes of England

Last week Boris Johnson signed the Leaders Pledge for Nature at a UN biodiversity summit. 

The Prime Minister added his name to signatories representing 74 countries who committed to a 10-point pledge to counteract the damage to systems that underpin human health and wellbeing.

In terms of what that might mean for farmers and landowners, Mr Johnson committed to increasing the amount of protected land in the UK to 30% by 2030. This amounts to an extra 400,000 hectares of England.

Details of how this target will be achieved are yet to be released, but there are certainly likely to be opportunities for landowners who choose to engage with the government to help deliver the target.

CLA President Mark Bridgeman commented: “There are many different ways to get nature thriving again, and the default should not be to set the countryside in aspic through designation. Conservation covenants can be extremely effective for long-term improvements and this should be explored.

“Ultimately, government must work with landowners and businesses existing tools and policies such as Biodiversity Net Gain and agri-environment schemes, alongside improved local planning to build a nature recovery network.”

The announcement has naturally been seized on by advocates of rewilding who are calling on more land to be allowed to revert to nature. 

To find out more about rewilding read my interview with the owners of the Knepp Castle Estate. It is about far more than letting nature just take its course.