Milk prices are dropping

Despite the beautiful weather, there are clouds overhead as far as many farmers are concerned. Milk purchasers are dropping their milk price, the value of arable crops continue to fall and beef prices, although they appear to have stabilised, are still around 20% down on the price achieved a year ago.

Milk prices appear to be falling because of increased production here in the UK and falling dairy commodity prices across the world. Dairy farmers have certainly seen reasonably good returns in the last 18 months or so but the tide appears to have turned; for instance Dairy Crest has announced a 1.1p per litre reduction on their standard price from 1st September while Arla has announced a 0.94p per litre drop from August.

Arable farmers appear to be facing even tougher times as grain markets continue to fall. There are a number of factors affecting such prices which include a general expectation of heavy crops this harvest and strong sterling which is making British exports less competitive. There is talk of lower yields in the US where some crops have been hit by drought which may reverse the fall in prices but to counter that the Russian grain harvest is forecast to increase. But, at present it appears to be the supply side of the market which is outstripping demand, hence prices are depressed.

As far as the beef sector is concerned, significant losses have already been made by some beef fattening units which bought expensive “store” cattle a year or so ago and now those cattle are ready for slaughter, the finished beef price has fallen to such a level that farmers are unable to recoup the cost of feeding the animals over the last year.

However, there is cautious optimism that the price of beef has at least levelled out and there are the odd signs that prices may start to gently improve but this is not a moment too soon for most beef farmers, who like arable farmers in particular, will find 2014 a very testing year.

Whether we are entering an era of lower commodity prices is not clear; we hear many people talking about the need to feed more mouths across the world and how this should provide a secure future for farmers, but this has not been borne out by the experience of many farmers over the last year or so. What seems clear to me is that farmers must become used to large fluctuations in world commodity markets and as a consequence they will need to make good use of their profits in the good years in order to survive the lean ones.

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

Arable prices at their lowest for years

As harvest begins, arable prices have fallen to their lowest levels for some years. “Farmers Weekly” figures for last week show feed wheat trading at around £132/t as compared to £162/t a year ago, and similarly feed barley trading at £107/t as compared to £140/t and Oilseed Rape at £235/t compared to £320/t.

In this area I have only seen winter barley being harvested to date although having been in Oxfordshire last Friday I did see combines rolling in the first fields of oilseed rape. It is too early to comment on crop yields but with prices where they are, farmers will need a bumper harvest to prevent significant losses.

Anecdotal evidence from the farmers I have spoken to indicate that although the crops look good, some have suffered from the very wet winter which has impacted yields, particularly on the wetter land while crops on more free draining land have fared better.

In addition to concerns over commodity prices and yields, farmers are also faced with another raft of decisions to be made concerning next year’s cropping which need to be addressed very soon. This is because next year will see the introduction of new rules for European support payments as the Single Payment Scheme is replaced by the new Basic Payment Scheme.

Allied to this scheme are a raft of new “greening measures” to which I have alluded in previous articles. These measures require arable farmers to observe new rules concerning crop diversification and the introduction of so called “Ecological Focus Areas” (EFAs).

Complying with these rules will be predictably complicated and what is clear is that farmers will need to make decisions very soon while the detailed rules are only just emerging. This is further complicated by the fact that the EFA rules will also impact on the payments received by some farmers under existing agri-environment schemes.

In addition many arable farmers who farm land on a “contract farming” basis will now need to treat these areas as a separate holding from their own land. This may sound simple to the uninitiated but it has the potential to threaten the viability of some long standing contract farming arrangements. As a consequence there will need to be detailed discussions between the landowner and contractor in the coming weeks if the payments due under landowner’s Basic Payment Scheme claim in 2015 are not to adversely be affected.

So, after a reasonably good run over the last few years arable farmers are faced with not only low commodity prices but also rule changes from Brussels which will make things more complicated and expensive with no obvious upside for anyone.

If farmers or landowners require advice on this matter they are welcome to contact James Stephen on 01749 683381.

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

Rise in interest rates is inevitable

A rise in interest rates is inevitable at some point but Will Mooney, Carter Jonas partner and head of its commercial agency and professional services in the eastern region, wonders how soon is now?

A year ago in these pages I was anticipating the end of the central banks’ monetary stimulus for their economonies. In the case of the Bank of England, it was, at that point, the £375 million worth of quantitive easing.

‘Removing the punchbowl just when the party is getting good’ is the phrase attributed to the Federal Reserve’s longest serving head who first coined it to describe the withdrawal of stimulus. Now there’s another central bank party pooper in the form of the threat of interest rate rises. Or rather, it’s the talk of the threat interest rate rises which is the spectre at the feast.

The Bank of England has held its base interest rate at 0.5 per cent for more than five years. At such a record low level, the only certain way is up. But when? And by how much? Such uncertainty could be damaging at worst but is unhelpful at best.

Since the late 17th Century, governments and, subsequently, the Bank of England have used the cost of borrowing as a means of responding to the economic pressures of the times. In the early years of Margaret Thatcher’s administration, in 1981, interest rates rose to an all-time high of 17 per cent. But that was a time before the great push towards property-ownership which has set itself in the psyche of the British public in the successive three decades to the point where it is commonly accepted as the touchstone of daily, domestic economic prosperity.

Now the 2014 property-owning democracy is incredibly twitchy about any talk of interst rate rises even if they are just going to be incremental by those ‘baby steps’ mooted by some commentators. There’s also a slice of homeowners who’ve moved in to the housing market since 2008 and whose lives are highly-geared around access to finance and low interest rates. There are plenty of other homeowners for whom a time when base rates were always in double figures is a dim and distant memory - if they remember it at all.

There is a view that interest rates are too blunt an instrument to control the complexities of a modern economy. But, in early June, when the European Central Bank slashed its deposit rate to below zero – minus 1 per cent – so it actually will cost commercial banks to keep their money centrally, it must have left many a lay person marvelling at the sophistication of economists, financiers and policy makers. Far from blunt.

In order to avoid the economic - and party political - collateral damage a big hike in interest rates could mean, we’re beginning to see policymakers hint at returning to a time when supply and demand mechanisms were deployed by governments in order to control the economy. Specifically, in 2014 , the housing market.

Measures include the new Mortgage Market Review – the pre-mortgage interview recently introduced where lenders look beyond income to consider household expenditure as a factor before making a mortgage offer. Then in his Mansion House speech, the Chancellor of the Exchequer took his own supply and demand ‘baby steps’ in trying to make councils bring forward brownfield sites for development. There are some who say this should go further and developers should be given the right to build on the green belt.

How far it is politically advisable for the coalition administration to try and control supply-side market conditions with a more hands-on approach remains to be seen.

What would be helpful is certainty. The market doesn’t like uncertainty. Endless speculation about rises in borrowing costs at a time when, in my own commercial property sphere, investors are ready to commit to more than ‘baby step’ investments is probably more harmful than the level at which any actual rise will be pegged.

Will Mooney MRICS
Partner
Commercial, Cambridge

News from the 'Beef Summit'

Last week saw DEFRA’s Farming Minister, George Eustice chair a so called “Beef Summit” with a view to dealing with the desperate situation the British Beef Industry finds itself in. In the last year beef prices have plummeted by around 20% which is posing very real problems to beef farmers, particularly those who “finish cattle”.

What is interesting to note here is that most farmers who finish cattle, purchase animals, called “store cattle”, from other farmers usually by auction at livestock markets. Here it is argued there is fair and open competition and thus the price paid represents the true open market value of the livestock purchased.

However, once the animals have been fattened they have to be sold to the dwindling number of abattoirs who in turn sell the majority of meat to the big supermarkets. It is this processor/retailer section of the food chain where the “market” becomes much less transparent. Thus many beef finishers are finding themselves having to compete for stock in the open market and then having to sell at “fixed” prices to abattoirs without any transparent competition in the system.

It was issues such as this that stimulated the beef summit where representatives from farming organisations, processors and retailers met in Westminster to discuss the problems facing beef farmers. The outcome of the meeting was that representatives from the farming unions and the British Meat Processors Association (BMPA) will meet over the summer to discuss a code to increase transparency.

The code will cover how trading terms, abattoir specifications and penalties are communicated to beef producers. This represents one of the areas of concern facing farmers but the retail sector is also another big issue where the perennial problem of clear labelling and fair pricing of meat is important.

Farmers appreciate that markets do go up and down but if supermarkets truly want to retain beef production in this country they need to work with the industry to give some certainty as to what prices are likely to do over a period of time.

To some extent supermarkets such as Waitrose are doing this and have recently announced that they will hold prices at no less than 345p/kg for their producers through to October. Tesco has also started a promotion of beef although from the advert I have seen includes British and Irish beef which illustrates the problem of labelling where nothing ever seems as transparent as it should be – will it be British or Irish beef that you actually have on your plate?

So it seems that although some progress has been made and that a code of conduct will be a good thing, there is a lot more still to be done before British beef farmers will feel they are at least being treated fairly by the processors and retailers that dominate the food chain “upstream” from the farm gate.

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

Potential threats to farmers as the British Economy strenghtens

As the British economy strengthens this may pose threats to farmers because it is likely the pound will strengthen and interest rates will rise.

The strengthening pound is a particular threat for two reasons; first because it will impact on the value of European support payments which are defined in Euros and converted to pounds before being paid to farmers and second because it will make exports less competitive and imports comparatively cheaper.

The exchange rate in particular has been identified in recent years as one of the most important factors influencing the profitability or otherwise of British farmers and for livestock farmers in particular the receipt of European support can often make the difference between profit and loss.

These livestock farmers are also potentially vulnerable to the impact of increased imports which have been implicated in the recent slump in beef prices as beef is being imported from destinations such as Ireland and Poland. As a result the value of beef cattle in this country have fallen by approaching 25% in the last 6 months or so which is posing a serious threat to many livestock farmers.

This has lead to criticism being directed at farming leaders where many farmers feel the National Farmers Union (NFU) has not been doing enough to “beat the drum” for British beef producers. But the NFU has explained it has been encouraging the public to buy British beef and to back the “Red Tractor” logo.

The Red Tractor logo was introduced in 2000 in the wake of the BSE crisis to give the public confidence in British produce. The Red Tractor is a food assurance scheme which covers production standards developed by experts on safety, hygiene, animal welfare and the environment amongst other things. The Red Tractor logo means the food or drink has met these responsible production standards and is fully traceable back to independently inspected farms in the UK.

The NFU are also highlighting where supermarkets have not made enough effort to differentiate between British and Irish beef. But, the Chairman of the NFU Livestock Committee has admitted it has been incredibly difficult to gain traction on this due to the combination of an over-supplied market and soft demand for beef in this country which is giving the retailers the chance to ‘drive down’ farmgate prices.

However, NFU President Mr Meurig Raymond said that, “Confidence, particularly among beef finishers, is at rock bottom. This is a crisis. It is our top priority,” He added that, “Next Tuesday’s beef summit, hosted by Farming Minister George Eustice, would be an opportunity to reinforce these messages and encourage DEFRA to promote beef exports.”

So it appears a lot is hoped of this high level meeting next week but it remains to be seen what effect political influence will have on market forces and the often obscure world of the meat industry from the predominantly Irish owned abattoirs to the supermarket dominated retail sector.

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

PRS - A political hot potato

The private rental sector (PRS) is in danger of becoming as hot a political potato as the EU.

Labour currently has no intention of a referendum on EU membership while Ukip has driven the Tories to despair with its relentless campaign to abandon the EU - and a referendum policy as a populist idea.

But what could be more populist than introducing controls for the PRS, driven by the urge to do highly visible things such as ending letting agents’ fees, which Labour has failed to push through before the General Election in May 2015 but which it promises will be on its agenda, along with three year tenancy terms and fixed rents?

Rent caps in places of high property values are one of the biggest fears that could drive the PRS into terminal decline. Yields become ever smaller as rents are constrained during periods of strong capital growth. Many owners would find it more beneficial to cash in and invest the money somewhere more sensible. Even a bank deposit account with three per cent interest could be better than renting at two per cent yield with all the accompanying risks of repairs, dilapidations, and the costs of regaining possession when yesterday’s dream tenant becomes tomorrow’s nightmare as their economic circumstances change.

Figures from ARLA show that 17 per cent of landlords are expected to sell one or all of their properties in the next 12 months, the highest proportion since 2008. The same source also revealed 59 per cent of lettings agents are reporting more would-be tenants than properties available. Just as the PRS needs to retain landlords, many are plotting their escape route to reap the benefits of the property price surge.

When you talk to lawyers and owners of high end properties in London’s prime quarters it becomes apparent that what interests buyers more is long term capital growth than short term low yield income. Buy to let is out, buy to reap substantial profit could well be coming in if it’s not here already.

Rent caps across the country are unrealistic because there are so many regional variations in property prices and therefore what seems like a fair return on investment. Are we to return to the days of the regional Rent Tribunals as the first avenue of escape for tenants served with notice to quit? The Tribunals, chaired by lawyers, could fix rents as well as deflect a notice to quit and were readily accessible to tenants with some savvy and no lawyer.

With commentators predicting that in very short time there will be more private sector renters than owners, restrictions on landlords and lettings agents could be as good for Ed Miliband as the right to buy council houses turned out for Margaret Thatcher.

Longer tenancies are also a real issue. A tenant who seems heaven-sent on day one could be the tenant from hell by month seven but then it would be too late to serve notice so easily. Employers, who see their staff and assess their performance every day, get four times the trial period it’s proposed to give landlords even though contact with the tenant is frequently non-existent and, at best, sporadic. Three year tenancies by default with a six month trial period will be seen as too risky to be realistic by many landlords. What is designed to protect tenants could actually reduce their chances of finding a home in the first place if availability shrinks. Rents would then rise because the cap is intended to be assessed through market conditions.

Lettings agents’ fees are another conundrum. It’s wrong, it’s said, for agents to charge for referencing or administration such as the inventory but under current plans landlords, and their agents by default, will soon be responsible for checking the immigration status of tenants and their right to live and work in the UK. This would need to apply to every tenant, with a birth certificate and some form of photographic identification to be safe even for those claiming UK birth and lifelong residence. Let to the wrong person and there’s a £3,000 penalty. If that person is working without the right to do so the penalties are stiffer still. When a tenant with the right to live in the UK arrives on the doorstep and it then transpires they don’t have the right to the employment they are using to pay the rent what does the landlord do - allow the tenancy because there’s no right to deny it and then report the tenant for paying the rent?

Someone has to fund the lettings agent’s time in processing all this as Civil Service substitutes because few landlords will want to undertake the task. If there are no fees for tenants, only for landlords, then rents will have to rise to cover the cost. But when the rent is capped, how can the cost of fees be applied?

There is too much fag packet planning and not enough real thought going into all this regardless of which political party happens to be having another bright idea today. Everyone is agreed on the importance of the PRS, everyone agrees it could be fairer all round, but who is going to sit down and work it all out as a policy and not a series of knee-jerk responses to the latest comment article?


Lisa Simon, 
Partner
Head of Residential Lettings
T: 020 7518 3234 
E: lisa.simon@carterjonas.co.uk

The rumblings of the Superstrike case continue

The rumblings of the Superstrike case continue, with a tenant defeating a notice to quit in a hearing at Birmingham County Court.

It’s not clear from reports of Gardner v McCusker 3BM70525 whether the notice served was under 21 (4) (A) for a periodic tenancy or a 21 (1) (B) for a fixed term and whether the Section notice was invalid simply because the agent had used the wrong one.

What is clear, however, is the landlords or their agents must ensure they re-serve prescribed information when a tenancy changes from an assured shorthold to a periodic.

The tenant, McCusker, agreed a fixed term for six months in November 2009. There was a deposit of £600, protected in the MyDeposits scheme in January 2010. There were various attempts to serve the prescribed information between November 2009 and September 2012. In May 2010, the fixed term tenancy expired and a statutory periodic tenancy arose. In March 2013, a notice under s.21, Housing Act 1988 was served. Possession proceedings were issued and met with a defence and counterclaim contending that there had been, inter alia, no service of the prescribed information in respect of the statutory periodic tenancy.

The court regarded the failed attempts to serve as non-service, the claim by the landlords (Gardner) for repossession failed, and they were ordered to repay the deposit and a penalty, a total of £1,800, plus costs, some of which were offset against rent arrears.

The moral of the story is that after an AST ends and the tenancy becomes periodic it must be regarded as a new tenancy and although the deposit is not subject to any specific transfers between parties again and remains with the deposit scheme it is regarded as a new deposit in law.

Superstrike and its ramifications are still under consideration by the Government with a view to legislative change but until this occurs a belt and braces approach must be taken with all prescribed information served again successfully in order to protect the landlord’s rights should repossession become necessary.


Lisa Simon, 
Partner
Head of Residential Lettings
T: 020 7518 3234 
E: lisa.simon@carterjonas.co.uk