Autumn drilling is all but over, the clocks have gone back and Christmas songs are playing in the shops. It is the time of year to reflect on the year gone by and to speculate what might be in store for 2022.
The past 12 months have seen a constant fight against the weather, Brexit disruptions, soaring fuel and fertiliser prices and continued uncertainty over what will replace the Basic Payment Scheme. As I write, the 2021 United Nations Climate Change Conference (COP26) is in session which could bring unimagined changes to the way in which we farm, with perhaps the greatest threats in the livestock sector. Tax rates, inflation rates and interest rates must surely rise soon to pay for the unprecedented costs of the pandemic.
On the back of such turbulence, surely many farmers will wish to leave the industry. The market should be awash with land and farms for sale with just a few choosy buyers taking their pick if the price is right.
Nothing could be further from the truth. There is no panic to leave the industry. There has been little land on the market, particularly across central England. If anything, land prices have risen again slightly and the average price for decent arable land might be approaching £10,000 per acre again.
The low supply of land for sale arises from the lack of any pressure from the banks. Farming has been a safe investment for the banking sector with low interest rates and significant asset values. Farmers have used the better years to ensure that borrowings are under control and many now have diversified income, making the farming income less critical. Given all the lifestyle, family and tax advantages of farming, why stop now?
We are also seeing significant money available for investment into farming, largely from development proceeds or from non-farming sources. In difficult times, farmland appears to be a safe investment despite the poor returns. As they say, “nobody is making it anymore”.
Notwithstanding the above, we have seen an enormous range in prices for farmland. Large, fully equipped farms have been in short supply and attract good interest where they are found. However, smaller blocks are very much dependent upon local demand. If the immediate neighbours do not have the funds then some land can become very difficult to sell at any price.
Initial pricing can also be key. A greedy guide price together with unnecessary clawback clauses can kill a sale before it starts, even for a larger serviced block. By the time the pricing is adjusted to a more realistic level, the property will be tainted. The market will assume that there is something wrong with the property.
Frankly, unless interest rates rise, the supply of land will remain limited. We should begin to see more certainty with the new Environmental Land Management scheme and I suspect that much of the oil price spike will dissipate. There will continue to be strong demand from those with the funds and I suspect that the 2022 market will be very similar to 2021. For those looking to exit the industry, the prices and the tax regime will remain favourable. Meanwhile, for those with the funds to buy, there will continue to be good opportunities.
For further information or to discuss your land or farms, please contact David.Back to articles