Our Farmland Value Model, based on historic data going back to 1975, shows further growth in land values during 2012, a trend we believe will continue to be driven by competition for top quality farms. However, we expect weaker demand and a slower rate of growth for smaller farms with a significant residential weighting, at least until the mainstream residential market revives.

We forecast growth of 40% in the next five years for average farmland values across Great Britain – a trend that is likely to mirror the prime central London residential market (see Graph 1).

Both markets are regarded safe havens for cash.

However, as noted above, the market is diverse and we forecast three scenarios as noted and illustrated in Graph 3 below.

Base: This is our average forecast, which for 2013, factors in current wheat price and thereafter a continuation of wheat price in line with the rising annual average price trend of the past 10 years. A reduced wheat yield in 2012 (7.5 per ha) due to adverse weather is included. Lower subsidies are unlikely to kick in until 2014/15.

It includes a steady level of overall farm profitability, ironing out any differences between sectors. Prime residential forecasts are factored in and we expect farmland supply to remain similar to the past few years.

Strong: This scenario illustrates the potential growth for good commercial arable and the best dairy farms. It enhances profitability to reflect top performers in the arable sector who are likely to compete with investors for a limited supply of suitable farms.

Weak: This scenario illustrates potential weakness in the market for livestock farms, which often have a significant residential component tied up in the total value. It factors in pressure on profitability, resulting in more ‘debt related’ supply, upsetting the supply/demand balance for these farms.

We anticipate significant recovery will be linked to the residential markets and more certain economic times, which is unlikely in the short-term.

Residential forecasts from Savills Residential Research are shown in Table 3 and in Graph 1.

Growth in the prime regional and mainstream markets, which are more aligned with the residential/amenity farms market, is forecast for the latter part of the next five years.