EU referendum - Impact on the land market

Arable farmers in particular are desperate to see more sun because sunshine at this time of year is so important to help their crops yield heavily.

June was a relatively dull month and July did not look summery till this week so there are concerns that yields will be down on last year, which is almost inevitable because last year was in general a bumper harvest - albeit crop prices were low. 

On the upside the weakening pound following the EU referendum has helped protect UK farmers from recent falls in wheat prices on world markets as UK wheat has become comparatively cheap. 

This weakening of sterling on the foreign exchange markets is generally good news for farmers because it makes imports more expensive and UK exports more competitive.  This has generally helped UK commodity prices such as beef, lamb or cereal. 

Indeed the exchange rate is probably the single most important factor impacting on the profitability of farmers in the UK and so in the short term at least, the effect of the referendum is good news although the longer term impacts of an exit from the EU is far more difficult to predict.

So what impact is all this uncertainty having on the land market?  Well, early indications are that Brexit has had little if any immediate effect.  Having seen a surge in land values over the last decade, farmland prices had started to ease a little over the last six months as the impact of the massive slump in commodity prices affected farm incomes. 

But with commodity prices firming a little and concern that other commercial and residential asset values are likely to slip, farmland may once again become a more attractive investment for farmers and investors alike.

And with interest rates looking destined to fall this is making borrowing money as cheap as I have ever seen.  For example fixed term rates of up to seven years offered by the Agricultural Mortgage Company have fallen below the Bank of England Base Rate, which must surely indicate that the money markets are anticipating a rate cut.

So, in the short term the outlook for farming has become a little brighter and lets hope our late arriving summer weather stays.

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