Farmers' income and the effects on the commodity markets

As farmers’ incomes slump the big question is how long it will be before enough of them - at home and abroad - reduce or cease production to rebalance the commodity markets.

This will surely happen at some stage and result in incomes rising to previous levels, but understandably most farmers are hoping it will be their neighbour and not themselves who will be first to give up.

DEFRA has released its first estimate of what it calls the UK’s Total Income from Farming for 2015. The TIFF figures represent the profit produced by farmers and it is not surprising that 2015 witnessed the most dramatic year on year fall since the turn of the century when farming was in the depths of an agricultural recession.

The report explains that in real terms the TIFF dropped by 29 per cent from 2014 to 2015 which in monetary terms means a fall of more than £1.5bn to just under £3.8bn.  This huge fall is reflected in the TIFF for an individual farmer which slid to just under £19,500 a year.

The primary driver behind these figures is the slump in world commodity prices.  This has been well reported and it is probably no surprise that the dairy sector has fared worst, with the value of milk produced falling by £940m despite a 2.6 per cent increase in production.  However other sectors also suffered with the value of wheat for example dropping by £432m.

And as the overall economy strengthened, so too did the value of sterling which had a detrimental impact on exchange rate for the conversion of agricultural support payments from euros into pounds.  This resulted in a fall in the value of EU support payments of £150m.

On a brighter note, some of these losses were offset partly by the fall in value of energy costs and livestock feed which are estimated to have dropped by £215m and £201m respectively while the value of fertilisers fell by £114m.

The weather was also good resulting in excellent growing conditions which yielded a bumper harvest in 2015 with huge quantities of grass and other fodder crops also grown.  But this is in part why commodity prices have fallen because such good growing conditions have contributed to increasing world stocks of food and therefore depressed prices.  

So, although from an individual farmer’s perspective it is great to see one’s own crops yielding well and cows producing more milk, this exacerbates the imbalance in supply and demand and until the supply side of this equation falls, there is unlikely to be a significant increase in commodity prices any time soon. 

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