Having had a few reasonably good years, it seems that the last 12 months have seen a bit of reversal in fortunes for farmers as evidenced by the fact that farm borrowing has increased by 9% in the year to last October. Latest figures released by the Bank of England show that total lending to agriculture rose to £13.5bn, which is £1bn higher than in October 2011.
This is no surprise in that although some of the increase will be for capital investment, a significant amount will simply be to fund working capital requirements as a result of increased input costs and in some cases the reduced value of outputs. The weather has obviously been a factor affecting the value of arable crops in particular while sheep farmers are suffering very low lamb prices at present which is something I touched upon in last week’s article.
However, what farmers need to appreciate is that although they have been looked upon reasonably favourably by banks since the banking crisis in 2008, this may not last forever. In general farmers have benefitted from a dramatic increase in the capital value of their land over the last 5 or 6 years and at the same time most have seen their profits rise, certainly as compared to the very difficult years they experienced in the early 2000s.
Consequently banks have looked upon agriculture as one of the safer places to lend money in recent years, but as the wider recession continues and banks are forced to hold higher cash reserves this will make them even more careful about who they lend money to. In this context farmers need to be aware that the next time they ask their bank to extend their overdraft or to take out a new loan, the answer may be “no”.
Thus, farmers who think they may need to borrow more money should examine their finances carefully to ensure their business plan stands up to scrutiny because it is better to approach the bank with a considered plan rather than just to assume that if more money is required it will be forthcoming.
There will of course be some cases where the bank will simply not support any more borrowing and in these circumstances farmers may need to seek professional advice to see whether the borrowing can be re-structured or assets sold to bring the borrowing down to acceptable levels without impacting too severely on the ongoing business. However in some circumstances the only answer may be to sell up altogether, taking advantage of the high value of agricultural land. This is obviously the last thing most farmers want to do but I fear this may become an increasingly common situation as profits are squeezed thereby leaving the more vulnerable businesses in a precarious position.
James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk
This is no surprise in that although some of the increase will be for capital investment, a significant amount will simply be to fund working capital requirements as a result of increased input costs and in some cases the reduced value of outputs. The weather has obviously been a factor affecting the value of arable crops in particular while sheep farmers are suffering very low lamb prices at present which is something I touched upon in last week’s article.
However, what farmers need to appreciate is that although they have been looked upon reasonably favourably by banks since the banking crisis in 2008, this may not last forever. In general farmers have benefitted from a dramatic increase in the capital value of their land over the last 5 or 6 years and at the same time most have seen their profits rise, certainly as compared to the very difficult years they experienced in the early 2000s.
Consequently banks have looked upon agriculture as one of the safer places to lend money in recent years, but as the wider recession continues and banks are forced to hold higher cash reserves this will make them even more careful about who they lend money to. In this context farmers need to be aware that the next time they ask their bank to extend their overdraft or to take out a new loan, the answer may be “no”.
Thus, farmers who think they may need to borrow more money should examine their finances carefully to ensure their business plan stands up to scrutiny because it is better to approach the bank with a considered plan rather than just to assume that if more money is required it will be forthcoming.
There will of course be some cases where the bank will simply not support any more borrowing and in these circumstances farmers may need to seek professional advice to see whether the borrowing can be re-structured or assets sold to bring the borrowing down to acceptable levels without impacting too severely on the ongoing business. However in some circumstances the only answer may be to sell up altogether, taking advantage of the high value of agricultural land. This is obviously the last thing most farmers want to do but I fear this may become an increasingly common situation as profits are squeezed thereby leaving the more vulnerable businesses in a precarious position.
James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk
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