Land value remains high in tough times

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Despite the sporting successes of last summer, 2012 will not be remembered fondly by the farming community: awful weather, low yields, increased input costs, lower SFP payments and poor ground conditions have had a significant impact on profitability and businesses’ cash flow.

Land prices have remained firm through all of this – rising by an average of 3% during the first half of 2012 and a further 2% in its last six months.

Prices for arable land are likely to be between £6,500 to £8,000/acre and significantly more has been paid for high quality land with good access.

Pasture varies significantly according to all the normal parameters and can range from £2,000 to £6,500/acre.

Agricultural rents too have increased significantly, driven by tendered rents often in excess of £200/acre (including Single Farm Payment) for arable land let under Farm Business Tenancies and Short Duration Limited Tenancies.

Traditional tenancy rents both sides of the border have risen by up to 30% since 2009, with some increases far greater than this agreed, and the impact of the Moonzie case and the treatment of entitlements as part of a rent review are yet to be fully understood for future and ongoing reviews. Rents for livestock farms have come under greater pressure because of increased feed costs.

It is likely that arable rents in England will continue to rise in the short term, driven by the continued high price of wheat and the need to spread costs.

The outlook is less certain in Scotland, as the Land Reform Group is considering whether or not to extend Tenants’ right to buy; this is prompting Landlords to look even more carefully at alternative arrangements such as contract farming agreements.

Looking forward, the ongoing reduction in land coming to the market is likely to continue as some farmers wait to see the detail of the current Common Agricultural Policy reform before making any major decisions about their businesses’ future.

We expect prices to continue to rise, although it is unlikely to be at the same rate as in 2012.

This is because the market has been underpinned by the commercial farming sector drive for expansion, and this may be lessened as agricultural lending has been tightened during 2012: a trend that is likely to continue in 2013, particularly after such a difficult harvest and ground conditions for autumnn cultivations.

Investors remain in the market, but are looking at areas where potential remains for capital growth.