Falling beef prices - serious concern for the livestock sector

The fall in the beef price being received by farmers is becoming a serious concern for the livestock sector.

Over the last few years beef prices have steadily risen peaking at over £4/kg deadweight but in the last six months in particular this trend has reversed and as a result many beef farmers are facing significant losses.

The price of beef has dropped by over 10% during the last twelve months while the price of beef on the supermarket shelves continues to stay firm or edge upwards which is causing British beef farmers significant concern.

This time last year the average price of a “standard steer” was £404p/kg which compares to a price of £362p last week and the price quoted by abattoirs to farmers continues to fall week on week.

What this means in real terms is that an beef animal weighing say £350kg deadweight will be worth £150 less this year than last year and because the margins on beef production are very low at the best of times, it seems likely beef fattening units in particular are going to face some significant losses over the coming months.

Indeed without support payments from Europe most livestock farmers in this country would simply not make a profit anyway and with such payments looking likely to reduce as we move in to the future many beef farmers will have to seriously examine the viability of their business model.

The problem is not helped by the fact that the retail outlets are dominated by the supermarkets which always brings in to question whether there is a fair market place between the many small farmers and the few big retailers. This is exacerbated by the fact that the number of abattoirs in this country is also dwindling, which further impacts on a farmer’s ability to influence the price they can achieve.

It is also interesting to learn that many of the abattoirs are owned by Irish firms and whether this influences the amount of Irish beef which is imported in to this country is open to question. Having said that Irish beef farmers are also struggling and so it may just be the low price of Irish beef which is influencing imports.

But what is clear is that on the supermarket shelves, British beef is often sold alongside Irish beef with no obvious distinction. Accordingly the NFU has called on retailers to stop mixing British and cheaper Irish beef on their shelves and to consider promotions to reignite consumer demand.

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

For those farmers affected by the floods

Flood affected farmers in this area will welcome the news that the government has announced they can apply for grants of up to £35,000 to help them recover from the devastating effects of last winter’s weather which affected many farmers on the Somerset Levels.

The money comes from the “Farm Recovery Fund” which was set up by DEFRA after Prince Charles and a succession of politicians, including David Cameron, visited Somerset to see the grim reality of what was happening for themselves.

DEFRA opened the fund on 28th February and initially have been taking bids for up to £5000 per farm, but from 28th April, farmers who have been particularly badly affected can apply for additional funding up to a total of £35,000 in total. This includes any money they have already been awarded under the initial bid process.

DEFRA secretary Owen Patterson re-visited the Levels on 15th April to see how farmers are recovering which is when he announced the second phase of the grant application to help farmers meet the costs “putting flooded farmland back in to production”.

James Winslade, who is the beef farmer whose cattle we saw so dramatically evacuated as the flood waters rapidly rose, engulfing his farm and the nearby village of Moorland, said, “It’s good that the government has acknowledged the scale of the problem. We have insurance but it mostly covers damage caused by fire and not floods. I will definitely apply for this additional grant money. Unless I apply for this grant I will not cope”.

What is clear is that although the weather has improved and superficially the grass looks as though it is growing, the land which was flooded to a significant depth for several months will not be productive for some time. This will not only impact on the availability of grazing for cattle which should be outside now, but it will impact on the amount of fodder which will be able to be conserved for next winter.

Thus farmers such as James Winslade are facing extra feed bills now and well in to the future plus the additional costs of bringing the damaged pasture back in to production. This will clearly have a very significant impact on the finances of such farmers and that is not to mention the impact the flooding will have had on their own homes.

Therefore the new grant money will be an important boost to help the worst affected farmers get back on their feet but it will be, by no means, a panacea for all their troubles.

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

Rural Payments Agency's online system

Last week saw a worrying glitch in the Rural Payment Agency’s (RPA’s) online system for claiming Single Payments, the application deadline for which is approaching on 15th May.

I for one was unable to log on to the system over the weekend of 12th and 13th of April and it is understood the problem persisted for some, well on in to the week. On contacting the RPA on Monday 14th April I was told that the problem was not in fact to do with the RPA’s own online system, which I hasten to add is generally excellent, but it concerned a problem being experienced by the “Government Gateway”.

At the time of writing it is not clear whether the problem has been conclusively resolved but what this does highlight is the potential fragility of relying entirely on online systems. This is of particular concern for the RPA who are intending to extend their reliance such systems when the new Basic Payment Scheme replaces the current Single Payment Scheme (SPS) in 2015.

The problems recently experienced were annoying but not catastrophic, but if they had occurred very much closer to the application deadline, the financial consequences of not getting the SPS application submitted on time could have been far more serious.

I am not suggesting we revert to the old paper forms but as our reliance on computers increases so too does our vulnerability to system failures or perhaps more worryingly online fraud of one form or another and in this context many farmers are probably quite exposed. This is because, for older farmers in particular, although many realise embracing computers is now a necessary evil , whether that be to deal with VAT returns or SPS applications, they are not familiar with the online “antics” of some fraudsters which are likely to be more familiar to younger or more frequent users.

Therefore, the government and RPA in particular are urged ensure that the government’s policy of “digital by default” does not leave elderly “non digital” farmers out in the cold and ensures the systems are robust so that all users are able to access the online systems at all times. After all the whole point of digital by default is to increase the efficiency and cost effectiveness of the delivery of schemes such as the SPS and if the systems are unreliable this will lead to frustration and potentially significant financial losses.

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

Tax reliefs for farmers

Accountants are always advising farmers to manage their affairs carefully so as to be able to take full advantage of the potentially generous reliefs which may be available to them under the Inheritance Tax (IHT) regime.

However, according to Catherine Desmond of accountants Saffery Champness, the National Audit Office (NAO) is launching an investigation in to the misuse of Agricultural Property Relief (APR) and Business Property Relief (BPR), both of which are very important reliefs available to farmers which can reduce or potentially illuminate the need to pay IHT on death. But with an impending investigation by the NAO it seems inevitable that claims for such reliefs will be brought under ever increasing scrutiny.

Accordingly farmers are advised to review their farming business regularly to ensure any changes in farming structure, ownership or occupation do not impact on their potential tax liability.

For example recent changes in planning regulations may encourage some farmers to argue buildings are no longer in agricultural use but the flip side of that coin will be that the Revenue may look to claim such buildings have a value on which reliefs may not be available.

Similarly we will all have seen Solar Parks and other renewable energy projects popping up all over the place and it may be that these developments will change the IHT status of the land and possibly the wider farming business depending upon the scale of the project. Further, another popular device used by landowners, who want to be seen to be farming rather than letting land for IHT purposes, is a contract farming agreement whereby the landowner employs a third party to carry out the farming operations on their behalf. In simple terms arrangement involves the landowner/farmer paying for all inputs over and above the contractor’s charges and then the landowner/farmer benefits from the profits, or losses generated once the crop or other produce has been sold.

This exposes the landowner to the true risk of running a farm but in many cases, although the written agreement may be satisfactory, the reality on the ground may be very different with the contractor effectively “farming” the land while the landowner receives a payment which is more akin to a rent than profit. Such an arrangement may fall foul of scrutiny by the Revenue which could be very costly if this resulted in the value of the land being taxed at 40% rather than receiving 100% relief from tax under either APR or BPR rules.

So the message is that farmers who are growing older should sit down with the family and their trusted professional advisors to ensure they take advantage of any tax reliefs that may be available or are at the very least are appraised of the potential IHT liability if they were to die in a relatively short period of time.

This all seems quite sensible but very often families do not want to discuss the inevitable for one reason or another or professional fees are perceived to be too high and as a result such discussions may not take place until it is too late which in the worst case scenario may jeopardise the future of a family farm.

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

Banks keen to lend to farmers

Banks are still keen to lend to farmers although the process of getting loans approved can still be quite tortuous as anyone who has recently tried to arrange a loan will be well aware.

However from my recent experience either valuing farms for banks or in helping farmers make loan applications for the Agricultural Mortgage Corporation (AMC), it is clear that competition between all the High Street banks is fierce and we often see “bidding wars” as each bank looks to undercut the other’s cost of borrowing.

The reason banks are keen to lend to farmers is because they generally have a very strong capital base which has been bolstered in recent years by the rise in farmland values. For example in this area we have seen the average value of land rise from around £3000 per acre in 2006 to around £7500 per acre today which is in stark contrast to the residential property market. However revenue returns on farms have not always matched the rise in capital values and this can be the stumbling block, with most banks now more concerned with the serviceability of borrowing than the loan to value ratio.

But in general this is good news for farmers as is the fact that some lending institutions such as the AMC have recently secured additional funding from the European Investment Bank (EIB) which means that for certain loans they can offer discounts on their standard margins of 0.8% which is a significant figure in these days of historically low interest rates.

Such discounts are unfortunately not available for the purchase of land or the restructuring of borrowing but they are available for investment in buildings and other equipment. Therefore if anyone is thinking of carrying out such work they should not only contact their existing bank manager but also consider contacting their local AMC agent to see if they can help.
  As AMC agents and valuers, my firm Carter Jonas, like many others is experienced in helping farmers and landowners through the often complicated process of convincing the bank’s credit team that the applicant is a worthy of taking up the proposed loan and in my experience it is the “early bird” that often catches the worm. Therefore if you think you may have a project that would attract the EIB funding farmers are advised to contact their local AMC agent or call me for free initial advice.

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