Fall in farm commodity prices

The fall in farm commodity prices has cut the profits from rural investments in the UK.

The total return in 2015 was 5.5 per cent – a decline of about 5 per cent from 2014’s return of 10.4 per cent.  This is the most subdued return since 2008 and reflects a slowing in the market after several years of very robust returns.

These figures come from the IPD UK Annual Rural Property Index which is sponsored by Carter Jonas and Savills. The Index tracks the performance of 1,873 properties with a combined capital value of more than £3 billion.

Caution around future market uncertainty was reflected in rural land capital growth, which reduced to 4.1 per cent in 2015 from 8.9 per cent in 2014. The decrease in the rate of capital growth made the most significant contribution to the decline in the total return.

As head of Carter Jonas’ rural team in the South West I believe the market is patchy but there is no doubt that the fall in commodity prices has had a very real impact on farm incomes and this in turn has impacted on confidence in the farming community.

More recently, political debate around Britain exiting the EU and the effect this may have on the agricultural industry has further dented confidence.  Now the level of uncertainty has ratcheted up a notch since the Leave campaign won the day.  However the vote is not likely to have much impact on world commodity markets and therefore farmers and investors are likely to continue being selective about investing in farmland.

All these factors have contributed to the land market cooling as farmers and investors are concerned that it will be a while yet before confidence returns to the agricultural economy. 

But farming is a long term industry and although rural incomes returns remain low at around 1.3 per cent according to the index, where land comes available for the first time in a generation, neighbouring farmers will very often still be interested in buying it. 

This is not least because in the long term land has often been seen as an excellent investment and they aren’t making any more of it. 

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk