Market trends for the price of farm commodities

Looking at market trends for the price of farm commodities when compared to a year ago does not make for particularly happy reading. The Farmers Weekly magazine publishes these figures each week and when compared to the prices achieved a year ago most commodities are significantly down.

I have written about beef prices before which have fallen sharply. The price quoted in the Farmers Weekly for last week was 345p per Kg deadweight which is down 50p per Kg on the price achieved this time last year although in this area I am reliably informed that one would struggle to achieve 325p per kg in this area. This indicates that the price being achieved for beef across the country varies significantly and we do not seem to be well placed in this area to achieve the highest prices.

These low prices have stimulated the Farmers For Action (FFA) group to launch protests at meat processing plants in the Midlands where there is concern about the amount of Polish beef being imported and processed in this country.

However, it is not only beef which has seen prices fall in the last year. Arable crops have also dropped sharply in value with Winter Wheat down from £180/tonne to £147/tonne and oilseed rape down from £380/tonne to £268/tonne. At today’s prices, profit margins for arable farmers are likely to be squeezed hard although on the reverse side of this particular coin, this should mean the cost of cereal based feed stuffs for livestock will fall.

In contrast lamb prices have remained steady while milk prices are well ahead of those being achieved this time last year but the trend in milk price is now distinctly downwards as the industry is hit by a number of milk purchasers cutting their farmgate milk prices.

For example, Dairy Crest has cut its liquid milk price by 1.25p/litre from July and Arla has dropped it direct-supplier price by 1.5p/litre. Similarly, earlier last week First Milk reduced its manufacturing contract price by 1.15p/litre.

All these price cuts have come on the back of falling world dairy commodity prices where Fonterra’s Global Trade Auction saw prices fall by 4.2% on 3rd June which is the eighth drop in a row for these auctions. Having said that, cheddar cheese prices rose by 8% and skimmed milk powder by 2.1% and so although milk prices are falling sharply at present there is hope they will stabilise and not fall to the desperately low prices which were witnessed two years ago which forced farmers to take direct action, blockading milk processing plants across the country including here in Somerset.

So what can we read in to all these “tea leaves” – well probably not a great deal other than the fact that markets do go up and down and farmers are exposed to the vaguaries of world markets now more than they have been at any time since the end of the Second World War. Therefore in order to survive, successful farmers will always need to keep their costs under control so as to make money in the good times and survive the hard times because market volatility is most definitely here to stay.

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

Progress since last winter's floods

Last week, as the agricultural correspondent of this paper, I was privileged to be invited by James Heappey, the Conservative candidate for Wells, to meet the Secretary of State for the Environment, Food and Rural Affairs, Owen Paterson MP.

Mr Paterson was in the area to visit the Bath and West Show and to investigate what progress has been made in the aftermath of last winter’s devastating floods on the Somerset Levels.

Having never met Mr Paterson before, my overriding impression was of a man who is committed to and knowledgeable about rural issues. He was questioned hard by a small group of farmers, landowners and rural professionals and he demonstrated that he had an in depth knowledge of a variety of subjects although the conversation was dominated by the ongoing impact that TB is having on so many livestock farmers in this area.

On this subject Mr Paterson was quite clear that the culling of badgers will remain part of the ongoing policy to eradicate the disease in cattle. The culling will continue in the two pilot areas in west Somerset and Gloucestershire and in the longer term he would like to see these areas extended widely throughout the counties which are badly affected by the disease.

He did also emphasise the need for continued bio-security measures in cattle which already involves a strict testing regime and culling of infected animals but this alone, he explained, will simply not eradicate the disease.

Other measures including vaccination of both cattle and badgers may become part of the strategy in the future but further research in to diagnostic tests and vaccinations and changes to European legislation will be required before such measures can be employed widely and cost effectively.

On the matter of flooding, which was another hot topic, he emphasised the need for local farmers, landowners, the Internal Drainage Boards, County and District Councils, the Environment Agency and conservation organisations to work in partnership to set up a Rivers Board to manage the rivers and other waterways in the long term to prevent a repeat of last winter’s problems.

He was keen to know how the EA was getting on with the initial dredging works on the Parrett and the Tone which has been funded by government. He was concerned that such work should not be held up by local bureaucracy, whether that be because of unnecessary health and safety or environmental hurdles but equally he emphasised the point that in the longer term it will be up to local organisations to sort this out for themselves.

He noted that in other parts of the country such as in Lincolnshire, landowners and farmers seemed to work well in partnership with the EA and he saw no reason why such arrangements cannot be put in place more effectively on the Somerset Levels. It seemed to me he was clearly setting down some parameters for the future in that although government have been willing to help with funds to “pump prime” the initial capital works, the ongoing responsibility will fall to local organisations to work much more effectively going forward with each other.

So, all in all, it was a fascinating insight in to the thinking of government at a high level and I came away with the feeling that we at least had someone in charge who understood the needs of the countryside which is a far cry from the dark years of Margaret Beckett’s leadership of DEFRA under the last Labour government.

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

A little knowledge can be a dangerous thing

Does access to all kinds of information and knowledge at our fingertips really make experts of us all? Will Mooney, Carter Jonas partner and head of its commercial agency and professional services in the eastern region, still values expert advice.

Computer coding becomes part of the National Curriculum in September this year and not before time really as the ability to code will be another pillar of education basics alongside the established three Rs for a numerate and literate society as we make our way in the 21st Century. Already, many primary schools run after-school coding clubs with the assistance of code-literate parents under the supervision of school’s own ICT staff.

While my heart lifts at coding’s inclusion in the curriculum, the same heart sinks a little at hearing of a training business which aims to teach executives to code in a day. It sinks in the same way as those of GPs when patients come to their surgeries with symptoms and diagnoses they’ve been researching on the Internet.

Okay, may be the course doesn’t promise to make the executive a coding expert in a day and it is laudable that knowing how to code is a vital business skill coding is being acknowledged, but there are no guarantees that senior and middle ranking execs – whose expertise is very much not in the nuts and bolts of coding - who leave that course won’t think they know enough in a day to pronounce an opinion on the matter and make business decisions based on a course which has cost a lot of money. As the saying goes, a little knowledge can be a dangerous thing and especially so in the minds of hands-on company executives.

It could also be seen as quite insulting to people who have coding expertise which has been gained after years of study and practice. A coding course does sound sexy in the way that chartered accountancy or company law in a day doesn’t. Both are crucial to the running of a company but it’s hard to imagine a day’s course attracting interest from the time-pressed modern exec.

Sending shudders through residential property peers will be news of the alliance between the founders of Poundland and Match.com who are coming together in the form of Estatesdirect.com to cut out the middlemen estate agents when it comes to housebuying and selling. Good luck with that in a housebuying chain of more than one.

It seems that with access to all kinds of expert knowledge and information at the touch of a button or the swishing of fingertips across a screen, we like to think we do or can know-it-all. It is almost as if there is no respect for true experts who have studied and practised in their particular field for years and can give advice based on that expertise.

Aptitude and application aren’t as valued as they used to be or as treasured as they should be and we view experts with a degree of suspicion more than we used to.

While there has always been a counterpoint to most expert opinion, we don’t have to shift ourselves to go and find it these days in the way we did pre-Internet access. A world wide web of contra-opinion to those of the expert with whom we think we disagree or whose opinion we don’t want to hear is laid bare before us to access instantly – as long as there’s Wi-fi connection, of course.

In the dynamic of the client-advisor business relationship, you will often find that clients don’t like what expert advisors have to say to them because it is not what they want to hear. While they don’t have to like it, it is important that they respect it. Equally, the adviser needs to respect the client’s decision to ignore the advice or seek that of another expert which may better suit the client’s own view.

Calling yourself an expert can be as easy or as hard as you like to make it in the modern age, depending on your level of integrity. But that’s just IMHO, of course!

Will Mooney MRICS
Partner
Commercial, Cambridge

The British bull market on the turn...

The bull market in British Agriculture may now be on the turn. As the wider economy starts to improve commodity prices look as though they are easing.

As predicted a few weeks ago, milk prices are beginning to fall – whether this is due to falling world markets or supermarket milk prices wars is not clear, but this week alone we have seen Arla drop their milk price by 1.27p/litre while Muller Wiseman has dropped its price by 1.6p/litre and First Milk by 2p/ litre from 2nd June.

Similarly beef prices are easing. The deadweight price for beef has dropped to around 355p/kg which is over 40p/kg less than a year ago while beef prices in the supermarkets have continued to increase, reducing the proportion of the retail price received by farmers from 60% this time last year to just over 51% today.

As far as arable farmers are concerned, wheat prices have also fallen from around £190/t a year ago to under £165/t today and oilseed rape prices by £70/t, from £374/t a year ago to £304/t today.

So it seems all sectors are feeling a chill breeze although it has to be remembered prices are falling from record levels in some instances. Even so one begins to wonder whether we are beginning to see a trend in reduced agricultural commodity prices as the world economy starts to pick up in the wake of the dramatic events of 2007/08 which shook the financial industry to its core.

It is often said that the agricultural economy is counter-cyclical to the wider economy and so after seven years of famine in the latter, maybe we are about to enter a similar period in the former. This may be being alarmist but there is definitely a feeling that we have seen the best of commodity prices for the time being.

This is also a reflection of the fact that the price farmers receive for their produce in this country is now very heavily influenced by world commodity markets. For instance the political instability we have seen in the Ukraine in recent months has to an extent bolstered the price of wheat as traders in world markets have reacted to fears that these troubles may impact on the supply of wheat from the Ukraine which is one of the world’s significant wheat producing areas.

So, a farmer’s profitability is only in part dictated by their skill in animal and crop husbandry or their general business acumen; it is the state of world markets and the vagaries of foreign exchange markets which is likely to have as great if not greater influence on the success or otherwise of a farming business.

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

Acronym-Mystic

A former non-executive director of Manchester United FC has just completed a thought-provoking series of four programmes for BBC Radio 4 and also the round of media interviews it seems is incumbent upon any ‘celebrity’ personality presenter.

The series was entitled ‘MINT: The next economic giants’. While music hipsters of the early part of this century might recall a programme on BBC 6 Music called ‘Mint’ – the credentials of the Radio 4 programme presenter could not be more different than those of DJ host Marc Riley, although both hail from Manchester.

As well as an ex-non-exec of a football club, presenter Jim O’Neill is a former chairman of Goldman Sachs Asset Management and very much the moment’s ‘go-to’ economist who says he sees his discipline as a social science.

MINT is an acronym which stands for Mexico, Indonesia, Nigeria and Turkey. These are the economies Jim O’Neill identifies as the next set of developing and emerging economies to which the global investment community is looking now to reap benefits in the future.

MINT is the new BRIC (Brazil, Russia, India, China) for long term investment bets, according to Jim O’Neil. While denying in an interview that he was the originator of the term BRIC, O’ Neill appeared happy to be credited with popularising its usage three years.

So popular in fact that anybody with even a passing interest in international business and investment can identify the BRICs. The very popularity is the spur which is moving the focus of global investors on to the MINTs.

In one of the radio interviews, O’Neill confessed that his focus might have been MIST and not MINT as South Korea was in the running too. Whether MINT or MIST, two of many reasons for identifying such countries were demographics and young governments with emerging democratic mandates. In the case of Mexico, a very young government with an administration led by President Enrique Peña Nieto who is just 47 years old.

Demography is on the side of developing and emerging economies in a way it isn’t for those more established. Investments always have to look to the future and there’s nothing more encouraging for a country’s future than a demographic bulge of young people poised to aspire, produce and consume.

A young population is advantageous for growth. Older societies, where pensioners increasingly outnumber the young and need to be supported by that dwindling number of young, prove burdensome to economic growth.

From an economist’s point of view, an active policy of immigration is something to look to when demographics are against growth. But the fly in the ointment for countries facing this demographic conundrum is, as Jim O’Neill pointed out, the fact that they live by the political cycle.

While the investment community thinks globally and acts for the long term, politicians think as far as their democratic tenure permits and, in the main, are guided by the populist policies of their times.

Jim O’Neill is nearly 57 years old but he talks with a speech inflection common among young people and which has been identified as ‘uptalk’. Apparently, uptalk is not appreciated by (older) senior managers as it indicates a reluctance to commit to what one has just said and infers a question and, thereby, uncertainty in the speaker.

Jim O’Neill sounded certain. Demographics are against the senior managers.

Will Mooney MRICS
Partner
Commercial, Cambridge

World Commodity Markets Are Strong

With farming becoming ever more reliant on world markets, farmers will be interested to learn that several organisations have reported that world commodity markets are strong and are expected to remain so for some years to come.

First, the United Nations Food and Agriculture Organisation (FAO) has recently published its latest monthly Food Price Index which showed that overall 2013 produced the third highest figure on record, almost equal to 2012 but about approaching 9% off the previous highest figure for 2011. The index is a measure of the monthly change in international prices of a basket of five food commodities, being cereals, sugar, oil, meat and dairy.

However, the total figure hides the fact that there was significant variation in the performance of the various commodities with dairy and meat reaching all time highs for the year while cereals were down by about 7% on the value for 2012 and oils index reached a four year low. These figures have been reflected in the fortunes of our farmers at home where dairy farmers in particular have seen milk prices rise sharply in the last year.

The second piece of encouraging news comes from the EU, where the Commission has published its annual report which attempts to model commodity prices in the medium term – in this instance over the next ten years. Such predictions have to be taken with a pinch of salt in that they are produced by computer generated models but even so the expectation is that commodity prices will remain firm.

But, it has to be remembered high prices do not always translate in to high profits and farmers must ensure they keep a careful eye on costs in particular because letting costs run away will eat in to profits. Further, there will always be price volatility and taking advantage of the highs and not getting caught out by the lows in commodity markets will be important. This is particularly relevant for arable farmers where crops can be stored and sold at different times of the year or even sold on “futures” markets while dairy farmers for example have to take whatever price is on offer at that time because liquid milk is perishable and cannot be stored.

Thus, compared to the lows of the late 1990s and early 2000s it seems farmers can look forward to the next few years with optimism but as we have seen in recent years, many external factors such as the weather can have a significant effect on an individual farmer’s fortunes. Therefore although the future looks reasonably bright no one can complacent and as ever it will the best run businesses which will thrive.

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

September beginnings

September is an exciting month. Families wring every drop out of the holidays, returning to schools and workplaces with tans still fresh from a mad drive up from some foreign port, the day before term starts. Children commence new academic years with the mixed emotions of catching up with missed friends and the fresh challenges of being another year older and just that little bit more grown up.

In Winchester, our September starts with the Alresford Show. A wonderful agricultural show which allows us to launch September sales and greet clients, old and new. It is lovely that in a business where over 80% of new clients commence their search via the internet, there is still a place for a chat in a field with a glass and a nibble. Each year, we seem to help more and more clients in this way.

Harvests are safely gathered in and the countryside sports stubbled fields in the gentile manner that gentlemen “forget” to shave on a Saturday yet get away with it with a smart shirt. There is a wonderful market at this time of year, whether it is an Indian summer or an early autumn. Buyers busy themselves, as does the rest of nature – hoping to have everything buttoned down before the winter. Salmon race up chalk streams towards their redds, squirrels bury acorns in lawns that are never to be found, gamekeepers prepare for early season partridge and agents prepare to launch post summer sales.

Seasonality has largely been lost in the housing market as a continued shortage of prime property has eroded the traditional “closed seasons” of the school summer holidays. Whilst it is true that many fathers will spend more time away with their families, this does not replace the desire to find the right property. Conversations around holiday supper tables are no less property orientated than weekend dinner parties in town or country. We have experienced consistent markets throughout the year in this respect. Yet the sea change in buying activity is as arbitrary and unpredictable as the seasons themselves. We have sold houses in April heat waves and August monsoons. A remarkable result in the last round of snow, earlier in the year, was a 17% premium achieved for perhaps the most neglected property we have sold.

Continued historically low interest rates have given way to some very cheap mortgage deals. It is essentially cheaper to buy than rent. Stock markets are within pre credit crunch ranges and sovereign debt has arguably been a feature of western economies since they came off the gold standard. It is the differential that is important, what you sell for is only important in relation to what you pay for the next property. In this market, there has arguably never been a better time to trade up.

A 15% premium was achieved in the recent sale of a village house; following 38 viewings, another recently achieved a 12.2% premium after 42 viewings and 23 offers generated over 10 days of marketing. A current sale of a house in Winchester launched last Thursday has generated 44 viewings, 3 offers and 12 notes of interest so far. The market is of short of good properties; therefore it is a sellers market, with great opportunities for our clients to achieve some impressive results.

I can only look forward to the unfolding sales season the onset of autumn with leaves turning to shades that make the whole countryside appear on fire and all that this lovely time of year has to bring. I have packed away my summer marketing skills set, along with my trout rod. My wellingtons and shooting coat are resident in my car. I have a diary full of property appointments and shoot dates. I am excited by all this new season has in store!

Matthew Hallett
Partner
Head of Residential Sales, Winchester