Supply 2013

The trend of limited supply continues and this year has so far followed a similar pattern to 2013. Supply remains at the lowest levels ever recorded and is similar to 2001 during the foot and mouth outbreak and 2004 during the run up to the introduction of the Single Farm Payment Scheme. The current CAP reform may be playing a part in today’s lack of supply but we believe the overall extent will be less than that in 2004 as the regional payment scheme in England has been in place since 2005. The uncertainty of the final subsidy levels in Scotland and Wales may impact directly on supply.

Our research shows just over 13,000 acres of farmland were publicly marketed across Great Britain during the first quarter of 2014; a 1% rise on the same period of 2013. However, there was a significant fall (-13%) in England while the increase in both Scotland (66%) and Wales (52%) kept overall supply at last year’s levels. Although, as illustrated in Graph 1, supply in Scotland is still around half of the normal supply for this time of year.

In addition there were significant regional variations across England. Table 1 shows that only a small number of farms have been marketed in the first quarter of 2014 and the percentage changes have to be treated with some care. Large increases in supply were recorded in the East (272%), the West Midlands (33%) and the South West of England (4%). In contrast, decreases in supply were recorded in the North of England (-14%), the East Midlands (-92%) and the South East (-63%).

Interestingly, the size of the average farm launched to the market so far this year is 40% larger at 226 acres, than in the same period of last year, a factor we shall monitor. We do anticipate this year's earlier wet weather could have an impact on supply, although we don’t expect it to be enough to impact on our forecasts for farmland values. Income and cash flow pressures on farm businesses, particularly in the livestock sector, could result in increased debt which in turn could lead to unplanned distressed sales.

The supply data in this report is derived from publicly marketed farmland. Anecdotal evidence suggests the private market for farms and land remains active with some strong competition for highly commercial units. Activity levels are probably at their highest for several decades.

Values

Our Farmland Value Survey has recorded a rise in average prime arable farmland of 1.5% to £8,700 per acre across Great Britain during the first quarter of 2014. This is slightly weaker growth than the 1.9% recorded in the same period of 2013. Although only a small acreage in England has publicly come to the market during this quarter, the continued growth in values has been driven by a combination of strong demand, the lack of supply and evidence from private deals.

Average values continue to mask the diversity in the market with sales achieved at values in excess of £12,000 per acre for the right farms. The top end of the market continues to be driven by quality and location with large commercial arable farms and high quality estates attracting the strongest demand.

However, as we stated in our Agricultural Farmland Survey published in February and following analysis from our residential research team, which showed year on year growth of 4.8% in the prime regional residential markets to the end of March 2014, we may be beginning to see the first signs of an uplift in the residential farm market. First quarter growth this year was concentrated across the middle of England, in Wales and in the South East rather than the Eastern arable areas as illustrated for average values of ‘all types’ farmland in Graph 2.

This ties in with the fact that so far this year poorer quality land has performed most strongly. The average value of poor livestock land increased by 4.2% and poor quality arable land by 3.4%, whereas last year the greatest increase in land values was recorded for prime arable land.

The market in 2014

■ We do not expect a significant change in the overall levels in the supply of farmland, and uncertainty surrounding CAP reform, especially in Scotland and Wales may be an additional limiting factor.

■ Conversely, increased pressures on farm incomes due to the very wet winter may lead to an increase in farms coming to the market. Although this is unlikely, however, to reverse the trend in capital growth.

■ We expect average farmland values across GB to grow at around 6% per annum over the next five years, but there will be significant variations in the rates of growth depending on land and farm type, as discussed in our recent Agricultural Farmland Survey published in February.

■ Quality and location will remain key and therefore we anticipate that the good commercial arable and the best dairy farms will have the strongest growth. This does not tie in with Q1 observations.

■ As the general economic outlook improves we expect further signs (see above) of a revival in the prospects for the residential farm, which in recent years has often failed to generate interest in all but the most popular lifestyle locations such as the Cotswolds.

■ While the outlook is good we can never underestimate potential threats which may cause uncertainty and upset the supply/demand balance with the potential to put pressure on value growth. These might include Scottish Independence and the 2015 General Election in the UK, but we don't expect the referendum in Scotland to have a discernible effect on commercial farmland.

Taken from
Market in Minutes: Q1 Farmland Market - April 2014